<Page>

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

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                                   FORM 10-Q

(MARK ONE)

   [x]        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                      THE SECURITIES EXCHANGE ACT OF 1934

                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003

                                       OR

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

             FOR THE TRANSITION PERIOD FROM __________TO __________

                         COMMISSION FILE NUMBER 1-9516

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

                      AMERICAN REAL ESTATE PARTNERS, L.P.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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

<Table>
<S>                                              <C>
                    DELAWARE                                        13-3398766
        (STATE OR OTHER JURISDICTION OF                          (I.R.S. EMPLOYER
         INCORPORATION OR ORGANIZATION)                        IDENTIFICATION NO.)

     100 SOUTH BEDFORD ROAD, MT. KISCO, NY                            10549
    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                        (ZIP CODE)
                                         (914) 242-7700
                      (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
</Table>

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

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

    Based upon the closing price of the Depositary Units on June 30, 2003, as
reported on the New York Stock Exchange composite tape (as reported by the Wall
Street Journal), the aggregate market value of American Real Estate Partners,
L.P. Depositary Units held by non-affiliates as of such date was $78,614,810.

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




<Page>

                                     INDEX

<Table>
<Caption>
                                                              PAGE NO.
                                                              --------
<S>                                                           <C>
PART I. FINANCIAL INFORMATION

    ITEM 1. FINANCIAL STATEMENTS

    Consolidated Balance Sheets
    June 30, 2003 and December 31, 2002.....................      2

    Consolidated Statements of Operations
    Three Months Ended June 30, 2003 and 2002...............      3

    Consolidated Statements of Operations
    Six Months Ended June 30, 2003 and 2002.................      4

    Consolidated Statements of Changes In Partners' Equity
     and Comprehensive Income Six Months Ended June 30,
     2003...................................................      5

    Consolidated Statements of Cash Flows Six Months Ended
     June 30, 2003 and 2002.................................      6

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

    ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
            FINANCIAL CONDITION AND RESULTS OF OPERATIONS...     15

    ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
            MARKET RISKS....................................     21

    ITEM 4. CONTROLS AND PROCEDURES.........................     22

PART II. OTHER INFORMATION..................................     23

    Item 1. Legal Proceedings...............................     23

    Item 6. Exhibits and Reports on Form 8-K................     24
</Table>

                                       1




<Page>

                      AMERICAN REAL ESTATE PARTNERS, L.P.
                            FORM 10-Q JUNE 30, 2003

                         PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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

                          CONSOLIDATED BALANCE SHEETS
                                  (UNAUDITED)

<Table>
<Caption>
                                                               JUNE 30,    DECEMBER 31,
                                                                 2003          2002
                                                                 ----          ----
                                                                     (IN $000'S)
<S>                                                           <C>          <C>
                           ASSETS
Real estate leased to others:
    Accounted for under the financing method................  $  148,520    $  155,458
    Accounted for under the operating method, net of
      accumulated depreciation..............................     203,116       204,242
Investment in U.S. Government and Agency obligations........     352,529       336,051
Note receivable due from affiliate..........................     250,000       250,000
Cash and cash equivalents...................................      61,905        51,394
Marketable equity and debt securities.......................      29,446        26,728
Mortgages and notes receivable..............................      64,505        56,216
Equity interest in GB Holdings, Inc.........................      35,587        37,280
Hotel, casino and resort operating properties net of
  accumulated depreciation:
    Stratosphere Corporation hotel and casino...............     167,342       171,430
    Hotel and resort........................................      43,284        44,346
Land and construction-in-progress...........................      40,271        40,415
Receivables and other assets................................      44,746        48,111
                                                              ----------    ----------
        Total...............................................  $1,441,251    $1,421,671
                                                              ----------    ----------
                                                              ----------    ----------

              LIABILITIES AND PARTNERS' EQUITY
Mortgages payable...........................................  $  184,543    $  171,848
Accounts payable, accrued expenses and other liabilities....      44,905        46,657
                                                              ----------    ----------
                                                                 229,448       218,505
                                                              ----------    ----------
Commitments and contingencies (Notes 2 and 3)
Limited partners:
    Preferred units, $10 liquidation preference, 5%
      cumulative pay-in-kind redeemable; 9,900,000
      authorized; 9,797,511 and 9,330,963 issued and
      outstanding as of June 30, 2003 and Dec. 31, 2002.....      99,199        96,808
    Depositary units; 47,850,000 authorized; 47,235,484
      outstanding...........................................   1,077,931     1,071,857
General partner.............................................      46,594        46,422
Treasury units at cost:
    1,137,200 depositary units..............................     (11,921)      (11,921)
                                                              ----------    ----------
Partners' Equity............................................   1,211,803     1,203,166
                                                              ----------    ----------
        Total...............................................  $1,441,251    $1,421,671
                                                              ----------    ----------
                                                              ----------    ----------
</Table>

                See notes to consolidated financial statements.

                                       2




<Page>

                      AMERICAN REAL ESTATE PARTNERS, L.P.
                            FORM 10-Q JUNE 30, 2003
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (UNAUDITED)

<Table>
<Caption>
                                                                     THREE MONTHS ENDED
                                                                          JUNE 30,
                                                                  ------------------------
                                                                   2003             2002
                                                                   ----             ----
                                                                   (IN $000'S EXCEPT PER
                                                                         UNIT DATA)
<S>                                                               <C>              <C>
Revenues:
   Hotel and casino operating income........................      $   40,714       $   38,850
   Land, house and condominium sales........................           1,551           15,331
   Interest income on financing leases......................           3,341            3,802
   Interest income on U.S. Government and Agency obligations
    and other investments...................................           3,818           13,056
   Rental income............................................           7,529            6,624
   Hotel and resort operating income........................           5,421            5,330
   Dividend and other income................................             818              924
   Equity in earnings of GB Holdings, Inc...................             644              301
                                                                  ----------       ----------
                                                                      63,836           84,218
                                                                  ----------       ----------
Expenses:
   Hotel and casino operating expenses......................          35,019           33,050
   Cost of land, house and condominium sales................             898           10,840
   Hotel and resort operating expenses......................           3,873            4,171
   Interest expense.........................................           3,327            3,533
   Depreciation and amortization............................           5,239            5,178
   General and administrative expenses......................           1,577            1,857
   Rental property expenses.................................           1,809            2,082
                                                                  ----------       ----------
                                                                      51,742           60,711
                                                                  ----------       ----------

Operating income............................................          12,094           23,507
Other gains and (losses):
   Provision for loss on real estate........................           --                (926)
   Write-down of equity securities available for sale.......           --              (8,476)
   Write-down of mortgages and notes receivable.............         (18,798)           --
   Loss on sales and disposition of real estate.............            (272)           --
   Minority interest in net earnings of Stratosphere
    Corporation.............................................           --                (589)
                                                                  ----------       ----------
Income (loss) from continuing operations....................          (6,976)          13,516
                                                                  ----------       ----------
Discontinued operations:
   Income from discontinued operations......................             103              140
   Gain on sales and disposition of real estate.............           1,924            --
                                                                  ----------       ----------
Income from discontinued operations.........................           2,027              140
                                                                  ----------       ----------
Net earnings (loss).........................................      $   (4,949)      $   13,656
                                                                  ----------       ----------
                                                                  ----------       ----------
Net earnings (loss) attributable to (Note 11):
   Limited partners.........................................      $   (4,851)      $   13,384
   General partner..........................................             (98)             272
                                                                  ----------       ----------
                                                                  $   (4,949)      $   13,656
                                                                  ----------       ----------
                                                                  ----------       ----------
Net earnings (loss) per limited partnership unit:
   Basic earnings (loss):
      Income (loss) from continuing operations..............      $    (0.17)      $     0.26
      Income from discontinued operations...................            0.04             0.01
                                                                  ----------       ----------
   Basic earnings (loss) per LP unit........................      $    (0.13)      $     0.27
                                                                  ----------       ----------
                                                                  ----------       ----------

Weighted average limited partnership units outstanding......      46,098,284       46,098,284
                                                                  ----------       ----------
                                                                  ----------       ----------

   Diluted earnings (loss):
      Income (loss) from continuing operations..............      $    (0.17)      $     0.24
      Income from discontinued operations...................            0.04             0.00
                                                                  ----------       ----------
   Diluted earnings (loss) per LP unit......................      $    (0.13)      $     0.24
                                                                  ----------       ----------
                                                                  ----------       ----------

Weighted average limited partnership units and equivalent
 partnership units outstanding..............................      46,098,284       55,794,494
                                                                  ----------       ----------
                                                                  ----------       ----------
</Table>

                See notes to consolidated financial statements.

                                       3




<Page>

                      AMERICAN REAL ESTATE PARTNERS, L.P.
                            FORM 10-Q JUNE 30, 2003
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (UNAUDITED)

<Table>
<Caption>
                                                                     SIX MONTHS ENDED
                                                                         JUNE 30,
                                                                  ----------------------
                                                                    2003          2002
                                                                    ----          ----
                                                                  (IN $000'S EXCEPT PER
                                                                        UNIT DATA)
<S>                                                               <C>           <C>
Revenues:
   Hotel and casino operating income........................      $    81,356   $    76,001
   Land, house and condominium sales........................            6,411        34,460
   Interest income on financing leases......................            6,759         7,726
   Interest income on U.S. Government and Agency obligations
    and other investments...................................            8,378        19,174
   Rental income............................................           15,020        13,499
   Hotel and resort operating income........................            8,670         8,184
   Dividend and other income................................            1,710         1,749
   Equity in (losses) earnings of GB Holdings, Inc..........             (213)        1,857
                                                                  -----------   -----------
                                                                      128,091       162,650
                                                                  -----------   -----------
Expenses:
   Hotel and casino operating expenses......................           69,115        64,701
   Cost of land, house and condominium sales................            5,001        24,669
   Hotel and resort operating expenses......................            6,998         7,284
   Interest expense.........................................            6,590         7,675
   Depreciation and amortization............................           10,872        10,112
   General and administrative expenses......................            3,237         3,505
   Rental property expenses.................................            3,678         3,607
                                                                  -----------   -----------
                                                                      105,491       121,553
                                                                  -----------   -----------

Operating income............................................           22,600        41,097
Other gains and (losses):
   Provision for loss on real estate........................             (200)         (926)
   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.............              866         1,639
   Minority interest in net earnings of Stratosphere
    Corporation.............................................            --             (996)
                                                                  -----------   -----------
Income from continuing operations...........................            3,507        32,338
                                                                  -----------   -----------
Discontinued operations:
   Income from discontinued operations......................              103           140
   Gain on sales and disposition of real estate.............            1,924         --
                                                                  -----------   -----------
Income from discontinued operations.........................            2,027           140
                                                                  -----------   -----------
Net earnings................................................      $     5,534   $    32,478
                                                                  -----------   -----------
                                                                  -----------   -----------
Net earnings attributable to (Note 11):
   Limited partners.........................................      $     5,424   $    31,832
   General partner..........................................              110           646
                                                                  -----------   -----------
                                                                  $     5,534   $    32,478
                                                                  -----------   -----------
                                                                  -----------   -----------
Net earnings per limited partnership unit:
   Basic earnings:
      Income from continuing operations.....................      $      0.02   $      0.64
      Income from discontinued operations...................             0.04          0.00
                                                                  -----------   -----------
   Basic earnings per LP unit...............................      $      0.06   $      0.64
                                                                  -----------   -----------
                                                                  -----------   -----------

Weighted average limited partnership units outstanding......       46,098,284    46,098,284
                                                                  -----------   -----------
                                                                  -----------   -----------

   Diluted earnings:
      Income from continuing operations.....................      $      0.02   $      0.57
      Income from discontinued operations...................             0.04          0.00
                                                                  -----------   -----------
   Diluted earnings per LP unit.............................      $      0.06   $      0.57
                                                                  -----------   -----------
                                                                  -----------   -----------

Weighted average limited partnership units and equivalent
 partnership units outstanding..............................       46,098,284    56,085,943
                                                                  -----------   -----------
                                                                  -----------   -----------
</Table>

                See notes to consolidated financial statements.

                                       4




<Page>

                      AMERICAN REAL ESTATE PARTNERS, L.P.
                            FORM 10-Q JUNE 30, 2003
                CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS'
                        EQUITY AND COMPREHENSIVE INCOME
                   SIX MONTHS ENDED JUNE 30, 2003 (IN 000'S)
                                  (UNAUDITED)

<Table>
<Caption>
                                               LIMITED PARTNERS' EQUITY
                                    GENERAL    ------------------------   HELD IN TREASURY      TOTAL
                                   PARTNER'S   DEPOSITARY    PREFERRED    -----------------   PARTNERS'
                                    EQUITY        UNITS        UNITS      AMOUNTS    UNITS      EQUITY
                                    ------        -----        -----      -------    -----      ------
<S>                                <C>         <C>           <C>          <C>        <C>      <C>
Balance, December 31, 2002.......   $46,422    $1,071,857     $96,808     $(11,921)   1,137   $1,203,166
Comprehensive income:
    Net earnings.................       110         5,424       --           --        --          5,534
    Reversal of unrealized losses
      on securities available for
      sale.......................        15           746       --           --        --            761
    Net unrealized gains on
      securities available for
      sale.......................        47         2,295       --           --        --          2,342
                                    -------    ----------     -------     --------   ------   ----------
Comprehensive income.............       172         8,465       --           --        --          8,637
Pay-in-kind distribution.........     --           (2,391)      2,391        --        --         --
                                    -------    ----------     -------     --------   ------   ----------
Balance, June 30, 2003...........   $46,594    $1,077,931     $99,199     $(11,921)   1,137   $1,211,803
                                    -------    ----------     -------     --------   ------   ----------
                                    -------    ----------     -------     --------   ------   ----------
</Table>

    Accumulated other comprehensive income at June 30, 2003 was $2,861.

                See notes to consolidated financial statements.

                                       5




<Page>

                      AMERICAN REAL ESTATE PARTNERS, L.P.
                            FORM 10-Q JUNE 30, 2003
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)

<Table>
<Caption>
                                                               SIX MONTHS ENDED
                                                                   JUNE 30,
                                                              -------------------
                                                                2003       2002
                                                                ----       ----
                                                                  (IN $000'S)
<S>                                                           <C>        <C>
Cash flows from operating activities:
    Income from continuing operations.......................  $  3,507   $ 32,338
    Adjustments to reconcile income from continuing
      operations to net cash provided by continuing
      operations:
        Depreciation and amortization.......................    10,872     10,112
        Gain on sales and disposition of real estate........      (866)    (1,639)
        Provision for loss on real estate...................       200        926
        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.......................................     --           996
        Equity in losses (earnings) of GB Holdings, Inc.....       213     (1,857)
        Changes in operating assets and liabilities:
            Decrease in land and construction-in progress...       146      6,475
            Increase in accounts payable, accrued expenses
              and other liabilities.........................     5,288      8,041
            Decrease (increase) in receivables and other
              assets........................................       515     (3,484)
                                                              --------   --------
                Net cash provided by continuing
                  operations................................    39,634     60,384
                                                              --------   --------
    Income from discontinued operations.....................     2,027        140
        Depreciation and amortization.......................        21      --
        Gain on sales and disposition of real estate........    (1,924)     --
                                                              --------   --------
                Net cash provided by discontinued
                  operations................................       124        140
                                                              --------   --------
                Net cash provided by operating activities...    39,758     60,524
                                                              --------   --------
Cash flows from investing activities:
    (Increase) decrease in mortgages and notes receivable...   (30,909)     2,399
    Net proceeds from sales and disposition of real
      estate................................................     3,259      5,554
    Principal payments received on leases accounted for
      under the financing method............................     2,737      3,167
    Additions to hotel, casino and resort operating
      property..............................................    (3,496)    (1,720)
    Additions to rental real estate.........................      (281)      (247)
    Increase in investment in U.S. Government and Agency
      Obligations...........................................   (16,717)    (5,184)
    Increase in marketable equity and debt securities.......     --        (1,904)
    Decrease in due to affiliate............................     --       (69,080)
    Other...................................................       (53)      (403)
                                                              --------   --------
                Net cash used in continuing operations......   (45,460)   (67,418)
                                                              --------   --------
    Cash flows from discontinued operations:
        Net proceeds from sales and disposition of real
          estate............................................     3,518      --
                                                              --------   --------
                Net cash used in investing activities.......   (41,942)   (67,418)
                                                              --------   --------
Cash flows from financing activities:
    Debt:
        Proceeds from mortgages payable.....................    20,000      --
        Payments on mortgages payable.......................    (3,837)      (167)
        Periodic principal payments.........................    (3,468)    (3,593)
                                                              --------   --------
                Net cash provided by (used in) financing
                  activities................................    12,695     (3,760)
                                                              --------   --------
Net increase (decrease) in cash and cash equivalents........    10,511    (10,654)
Cash and cash equivalents -- beginning of period............    51,394     61,015
                                                              --------   --------
Cash and cash equivalents -- end of period..................  $ 61,905   $ 50,361
                                                              --------   --------
                                                              --------   --------
</Table>

                                       6




<Page>

                      AMERICAN REAL ESTATE PARTNERS, L.P.
                            FORM 10-Q JUNE 30, 2003
              CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
                                  (UNAUDITED)

<Table>
<Caption>
                                                               SIX MONTHS ENDED
                                                                   JUNE 30,
                                                              -------------------
                                                                2003       2002
                                                                ----       ----
                                                                  (IN $000'S)
<S>                                                           <C>        <C>
Supplemental information:
    Cash payments for interest..............................  $  6,267   $  7,406
                                                              --------   --------
                                                              --------   --------
Supplemental schedule of noncash investing and financing
  activities:
    Reclassification of real estate to operating lease......  $  2,158   $  --
    Reclassification of real estate from financing lease....    (2,158)     --
    Reclassification from marketable equity and debt
      securities............................................     --       (19,804)
    Reclassification from receivables and other assets......    (1,631)     --
    Reclassification to mortgages and notes receivable......     1,631     19,804
    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      --
                                                              --------   --------
                                                              $  --      $  --
                                                              --------   --------
                                                              --------   --------
Net unrealized gains (losses) on securities available for
  sale......................................................  $  2,342   $   (447)
                                                              --------   --------
                                                              --------   --------
Increase in equity and debt securities......................  $    600   $    600
                                                              --------   --------
                                                              --------   --------
</Table>

                See notes to consolidated financial statements.

                                       7




<Page>

                      AMERICAN REAL ESTATE PARTNERS, L.P.
                            FORM 10-Q JUNE 30, 2003
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)

1. GENERAL

    The accompanying consolidated financial statements and related footnotes
should be read in conjunction with the consolidated financial statements and
related footnotes contained in the Company's annual report on Form 10-K for the
year ended December 31, 2002.

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

    The results of operations for the three and six months ended June 30, 2003
are not necessarily indicative of the results to be expected for the full year.
Hotel, casino and resort operations are highly seasonal in nature and are not
necessarily indicative of results expected for the full year.

2. RELATED PARTY TRANSACTIONS

    a. In May 2003, the Company entered into an agreement to acquire certain
debt and equity securities of National Energy Group, Inc. ('NEG') and a 100%
interest in an entity owning part of such debt and equity securities from
entities affiliated with and indirectly wholly-owned by Carl C. Icahn ('Icahn'),
the Chairman of the Board of the General Partner. NEG owns an interest in
entities primarily involved in owning and operating oil and gas properties and
manages the oil and gas operations of such entities.

    The aggregate consideration to be paid will be approximately $148 million,
plus unpaid but accrued interest on the debt securities through closing. Upon
closing this transaction, the Company will beneficially own in excess of 50% of
the issued and outstanding common stock of NEG and 100% of its outstanding
10 3/4% Senior Notes, due November 1, 2006, in the aggregate principal amount of
$148,637,000. The closing of the transaction is subject to certain conditions,
including, among other things, the approval of the shareholders of NEG of
certain amendments to its certificate of incorporation and subsequent action by
NEG's board of directors pursuant to such amendments. There is no assurance that
this transaction will be consummated.

    The agreement was reviewed and approved by the Audit Committee of the Board
of Directors of the General Partner (the 'Audit Committee'). Prior to approving
the agreement, the Audit Committee was advised by its independent financial
advisor and legal counsel.

    b. The Company is a party to a license agreement with an affiliate of the
General Partner for a portion of office space at an annual rental of
approximately $135,000, plus its share of certain additional rent. Such
agreement was approved by the Audit Committee. For the three and six months
ended June 30, 2003 the Company paid rent of approximately $40,000 and $77,000,
respectively and for the three and six months ended June 30, 2002 the Company
paid rent of approximately $38,000 and $74,000, respectively.

    c. Stratosphere Corporation ('Stratosphere'), a wholly-owned subsidiary,
received approximately $748,000 and $1,327,000 from affiliates of the General
Partner as reimbursement for administrative services performed by Stratosphere
personnel during the three and six months ended June 30, 2003, respectively. For
the three and six months ended June 30, 2002, Stratosphere received
approximately $400,000 and $876,000, respectively.

    d. As of August 1, 2003 affiliates of Icahn owned 8,477,139 Preferred Units
and 39,706,836 Depositary Units.

    e. See Note 4 regarding Note Receivable -- Affiliate.

                                       8




<Page>

3. COMMITMENTS AND CONTINGENCIES

    a. In January 2002, the Cape Cod Commission (the 'Commission'), a
Massachusetts regional planning body created in 1989, concluded that the
Company's New Seabury development proposal 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 exempt from the Commission's jurisdiction and that the Commission is barred
from exercising jurisdiction pursuant to a 1993 settlement agreement between the
Commission and a prior owner of the New Seabury property.

    In February 2002, New Seabury Properties LLC ('New Seabury'), the Company's
subsidiary and owner of the property, filed a civil complaint in Barnstable
County Massachusetts Superior Court appealing the Administrative Decision by the
Commission and a separate complaint to find the Commission in contempt of the
1993 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 which are currently pending before the
Court.

    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. New Seabury may seek to amend the pending proceedings to
incorporate an appeal from the July 2003 administrative decision. 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 carrying value of New Seabury's development assets at June 30, 2003 is
approximately $8.8 million.

    b. 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
Stratosphere 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 $371,873 were disbursed to
Tiffiny and Great Western, 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 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 results of operations or
the financial position of the Company.

                                       9




<Page>

    d. In January 2002, Kmart Corp. ('Kmart'), a tenant leasing seven properties
owned by the Company which represented 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 were rejected representing approximately $713,000 in annual rents. Three
of the rejected properties are being held for sale. The Company previously
recorded a provision for loss on real estate of approximately $1.9 million, on
the four properties whose leases were rejected, in the year ended December 31,
2001. In April 2003, one of the leases representing approximately $242,000 in
annual rentals was assumed by Kmart and assigned to Home Depot, who purchased
the property for $3.2 million in June 2003. A gain of approximately $1.7 million
was recorded in 'Income from discontinued operations' in the three and six
months ended June 30, 2003. Kmart emerged from bankruptcy in May 2003 and
affirmed the two remaining leases representing approximately $418,000 in annual
rentals.

4. NOTE RECEIVABLE -- AFFILIATE

    On December 27, 2001, the Company entered into a transaction with Carl C.
Icahn, Chairman of the Board of the General Partner, pursuant to which the
Company made a $250 million loan to Mr. Icahn. The agreement provides for
maintenance of collateral for the loan comprised of $250 million in aggregate
market value of the Company's depositary and preferred units and $250 million
(in book value) of shares of a private company owned by Mr. Icahn. Adjustments
to the number of pledged securities are made periodically in accordance with the
terms of the respective pledge agreements. Subject to such adjustments, at June
30, 2003 the loan was secured by securities consisting of (i) approximately $345
million aggregate market value at June 30, 2003 of the Company's units owned by
affiliates of Mr. Icahn (approximately 21.1 million depositary units and 8.5
million preferred units) and (ii) shares of a private company owned by
Mr. Icahn, which shares 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 private company owns
other Icahn investments and does not own the Company's units. The loan is due on
or before December 27, 2003 and by law may not be renewed or extended. The loan
bears interest at a per annum rate equal to the greater of (i) 3.9% or (ii) 200
basis points over 90 day LIBOR to be reset each calendar quarter. The applicable
rate during the three months ended March 31, 2003 and June 30, 2003 was 3.9%.
The applicable rates were 3.9% and 4.03% for the three months ended March 31,
2002 and June 30, 2002, respectively. The loan must be prepaid in an amount of
up to $125 million to the extent that the Company requests such funds for an
investment opportunity and may be prepaid at any time by Mr. Icahn. The Company
entered into this transaction to earn interest income on a secured investment.
In the event of a loan default, the Company would at its option, liquidate the
shares of the private company or reacquire its own units, or both, to satisfy
the loan. Interest income of approximately $2.5 million and $4.9 million was
recorded on this loan in the three months and six months ended June 30, 2003,
respectively, and also in the three and six months ended June 30, 2002,
respectively, and is included in 'Interest income on U.S. Government and Agency
obligations and other investments' in the Consolidated Statements of Operations.
Interest is payable semi-annually and has been paid through June 30, 2003. The
terms of this transaction were reviewed and approved by the Audit Committee.

5. HOTEL, CASINO AND RESORT OPERATING PROPERTIES

    a. Stratosphere Hotel and Casino

    The Company owns 100% of Stratosphere and consolidates Stratosphere in its
financial statements.

    Stratosphere owns and operates the Stratosphere Casino, Hotel & Tower,
located in Las Vegas, Nevada, which is centered around the Stratosphere Tower
(the 'Tower'), the tallest free-standing observation tower in the United States.

    Stratosphere operates, among other things, the Tower, a hotel with 2,444
rooms and suites, a 97,000 square foot casino featuring 1,474 slot machines, 48
table games, a race and sports book, a keno lounge, a 160,000 square foot second
level containing a retail center of 46 shops and a 650-seat Broadway

                                       10




<Page>

Showroom, a 3,600-seat Outdoor Events Center, a 120-seat entertainment lounge
and parking for approximately 4,000 cars. The hotel has seven themed restaurants
and a New York style delicatessen.

    Stratosphere's operations for the three and six months ended June 30, 2003
and 2002 have been included in 'Hotel and casino operating income and expenses'
in the Consolidated Statements of Operations. Hotel and casino operating
expenses include all expenses except for approximately $2,858,000 and $6,246,000
of depreciation and amortization for the three and six months ended June 30,
2003, respectively and $3,319,000 and $6,636,000 for the three and six months
ended June 30, 2002, respectively. Such amounts have been included in
'Depreciation and amortization expense' in the Consolidated Statements of
Operations.

    b. Hotel and Resort Operating Properties

    Hotel and resort operations for the three and six months ended June 30, 2003
and 2002 have been included in 'Hotel and resort operating income and expenses'
in the Consolidated Statements of Operations. Hotel and resort operating
expenses include all expenses except for approximately $630,000 and $1,372,000
of depreciation and amortization for the three and six months ended June 30,
2003, respectively and $552,000 and $921,000 of depreciation and amortization
for the three and six months ended June 30, 2002, respectively. Such amounts
have been included in 'Depreciation and amortization expense' in the
Consolidated Statements of Operations.

6. EQUITY INTEREST IN GB HOLDINGS, INC. (SANDS HOTEL AND CASINO)

    The Company reflects its pro-rata equity interest in GB Holdings, Inc.
('GBH') under this caption in the Consolidated Balance Sheets. The Company owns
approximately 3.6 million shares, 36%, of GBH. GBH is the holding company for
the Sands Hotel and Casino (the 'Sands') located in Atlantic City, New Jersey.
The Sands operates a casino facility with approximately 79,000 square feet of
gaming space, a hotel with 511 rooms (including 57 suites) and related
amenities.

    'Equity in earnings (losses) of GB Holdings, Inc.' of $644,000 and
($213,000) have been recorded in the Consolidated Statements of Operations for
the three and six months ended June 30, 2003, respectively. 'Equity in earnings
of GB Holdings, Inc.' were $301,000 and $1,857,000 for the three and six months
ended June 30, 2002, respectively.

    In July 2003, GBH announced that its Board of Directors, acting through a
special committee, approved an exchange offer for the Sands debt. The proposed
transaction is subject to the consent of the holders of a majority in principal
amount of the existing 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. A wholly-owned subsidiary of GBH currently has
outstanding $110 million in secured notes due in September 2005, which 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
     subsidiary of GBH ('Newco').

     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.

     The holders of a majority of the new notes will have an option to convert
     into 72.5% of the Newco 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 Newco (on a
     fully diluted basis).

                                       11




<Page>

    This transaction is not expected to have a significant impact on the
Company's consolidated financial statements.

7. MARKETABLE EQUITY AND DEBT SECURITIES

    The Company owns equity and debt securities of Philip Services Corporation.
('Philip'). 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 first quarter of 2003, management of the Company determined to
write-off the balance of its investment in the Philip 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.

8. MORTGAGES AND NOTES RECEIVABLE

    a. The Company owns Philip Term and Payment-in-kind ('PIK') notes (the
'Notes') in the principal amount of approximately $32.7 million; the cost basis
of the Notes 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 Notes and determined this investment to be impaired.
Based upon this review, management concluded the fair value of the Notes to be
approximately $3.3 million; therefore, the Company recorded a write-down of
approximately $18.8 million by a charge to earnings in the three and six months
ended June 30, 2003.

    b. 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,
prior to construction completion, pending the achievement of certain pre-sales
levels or receipt of principal and interest payments. Upon construction
completion, anticipated in the second half of 2003, the Company will review the
status of each loan to determine whether or not recognition of interest income
in the financial statements is appropriate. At June 30, 2003, the Company had
funded three mezzanine loans in the principal amount of approximately $54.2
million (of which approximately $31 million was funded in the six months ended
June 30, 2003) and had deferred approximately $10 million of accrued interest
income for financial statement purposes.

9. MORTGAGES PAYABLE

    a. 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.

    b. The Company has engaged an investment banking firm to help it obtain
financing on certain of its unencumbered properties. The amount of financing
being sought is approximately $150 million; however, there can be no assurance
that satisfactory terms will be obtained or funding completed.

10. 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
June 30, 2003, 9,797,511 Preferred Units are issued and outstanding.

                                       12




<Page>

    Effective July 1, 2003, the Company will adopt Statement of Financial
Accounting Standards No. 150 (SFAS 150) 'Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity'. Pursuant to
SFAS 150 the Company's Preferred Units will be reclassified from 'Partners'
Equity' to a liability account in the Consolidated Balance Sheets and the
preferred pay-in-kind distribution will be recorded as 'Interest expense' in the
Consolidated Statements of Operations. See Note 14.

11. EARNINGS PER SHARE

    Basic earnings per share are based on earnings after the preferred
pay-in-kind distribution to Preferred Unitholders.

    Diluted earnings per share uses net earnings attributable to limited partner
interests as the numerator with the denominator based on the weighted average
number of units and equivalent units outstanding. The Preferred Units are
considered to be equivalent units. The number of limited partnership units used
in the calculation of diluted income per limited partnership unit did not
increase in the three and six months ended June 30, 2003 as such increase would
be anti-dilutive. The number of limited partnership units used in the
calculation of diluted income per limited partnership unit increased as follows:
9,696,210 and 9,987,659 limited partnership units in the three and six months
ended June 30, 2002, respectively, to reflect the effects of the potential
conversion of preferred units.

12. COMPREHENSIVE INCOME

    The components of comprehensive income (loss) include net income and certain
other amounts reported directly in the Consolidated Statements of Changes in
Partners' Equity and Comprehensive Income.

    Comprehensive income (loss) for the three and six months ended June 30, 2003
and 2002 is as follows (in $000's):

<Table>
<Caption>
                                                                THREE MONTHS
                                                                    ENDED
                                                              -----------------
                                                              6/30/03   6/30/02
                                                              -------   -------
<S>                                                           <C>       <C>
Net (loss) income...........................................  $(4,949)  $13,656
Reversal of unrealized losses on securities available for
  sale......................................................    --       12,065
Adjustment to reverse unrealized loss on investment
  securities reclassified to notes receivable...............    --        6,582
Net unrealized gains on securities available for sale.......    1,177     --
                                                              -------   -------
Comprehensive (loss) income.................................  $(3,772)  $32,303
                                                              -------   -------
                                                              -------   -------
</Table>

<Table>
<Caption>
                                                              SIX MONTHS ENDED
                                                              -----------------
                                                              6/30/03   6/30/02
                                                              -------   -------
<S>                                                           <C>       <C>
Net income..................................................  $ 5,534   $32,478
Reversal of unrealized losses on securities available for
  sale......................................................      761    10,148
Adjustment to reverse unrealized loss on investment
  securities reclassified to notes receivable...............    --        6,582
Net unrealized gains on securities available for sale.......    2,342     --
                                                              -------   -------
Comprehensive income........................................  $ 8,637   $49,208
                                                              -------   -------
                                                              -------   -------
</Table>

13. SEGMENT REPORTING

    The Company is currently engaged in five operating segments consisting of:
(i) rental real estate, (ii) hotel and resort operating properties, (iii) hotel
and casino operating properties, (iv) land sales, house and condominium
development, and (v) investment in securities including investment in other
limited partnerships and marketable equity and debt securities. The Company's
reportable segments offer different services and require different operating
strategies and management expertise. There have been no material changes in
segment assets since December 31, 2002.

                                       13




<Page>

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

    During 2003, the Company realigned the management of its hotel and casino
investments. Previously, the Company's investment in GB Holdings, Inc. and the
results of its operations were considered as part of the Company's 'other
investments' segment. For the three and six months ended June 30, 2002, $301,000
and $1,857,000, respectively, representing the Company's equity in GB Holdings,
Inc.'s net income for the periods, has been reclassified from other investments
to hotel and casino operating income and earnings to conform to the 2003
presentation.

    The revenues and net earnings for each of the reportable segments are
summarized as follows for the three and six months ended June 30, 2003 and 2002
(in $000's):

<Table>
<Caption>
                                                                 THREE MONTHS
                                                                     ENDED
                                                              -------------------
                                                              6/30/03    6/30/02
                                                              -------    -------
<S>                                                           <C>        <C>
Revenues:
    Hotel and casino operating income.......................  $ 41,358   $ 39,151
    Land, house and condominium sales.......................     1,551     15,331
    Rental real estate......................................    10,870     10,426
    Hotel and resort operating income.......................     5,421      5,330
    Other investments.......................................     1,407      9,865
                                                              --------   --------
            Subtotal........................................    60,607     80,103
Reconciling items -- primarily interest income on U.S.
  Government obligations and the Icahn note receivable......     3,229      4,115
                                                              --------   --------
            Total revenues..................................  $ 63,836   $ 84,218
                                                              --------   --------
                                                              --------   --------
Net earnings (loss):
    Segment earnings:
        Hotel and casino operating properties...............  $  6,339   $  6,101
        Land, house and condominium development.............       653      4,491
        Rental real estate..................................     9,061      8,344
        Hotel and resort operating properties...............     1,548      1,159
        Other investments...................................     1,407      9,865
                                                              --------   --------
            Total segment earnings..........................    19,008     29,960
Other expenses, net.........................................   (23,957)   (16,304)
General partner's share of net loss (income)................        98       (272)
                                                              --------   --------
            Net earnings (loss) -- limited partner
              unitholders...................................  $ (4,851)  $ 13,384
                                                              --------   --------
                                                              --------   --------
</Table>

<Table>
<Caption>
                                                                  SIX MONTHS
                                                                     ENDED
                                                              -------------------
                                                              6/30/03    6/30/02
                                                              -------    -------
<S>                                                           <C>        <C>
Revenues:
    Hotel and casino operating income.......................  $ 81,143   $ 77,858
    Land, house and condominium sales.......................     6,411     34,460
    Rental real estate......................................    21,779     21,225
    Hotel and resort operating income.......................     8,670      8,184
    Other investments.......................................     3,305     11,656
                                                              --------   --------
            Subtotal........................................   121,308    153,383
Reconciling items -- primarily interest income on U.S.
Government obligations and the Icahn note receivable........     6,783      9,267
                                                              --------   --------
            Total revenues..................................  $128,091   $162,650
                                                              --------   --------
                                                              --------   --------
</Table>

                                                  (table continued on next page)

                                       14




<Page>

(table continued from previous page)

<Table>
<Caption>
                                                                  SIX MONTHS
                                                                     ENDED
                                                              -------------------
                                                              6/30/03    6/30/02
                                                              -------    -------
<S>                                                           <C>        <C>
Net earnings:
    Segment earnings:
        Hotel and casino operating properties...............  $ 12,028   $ 13,157
        Land, house and condominium development.............     1,410      9,791
        Rental real estate..................................    18,101     17,618
        Hotel and resort operating properties...............     1,672        900
        Other investments...................................     3,305     11,656
                                                              --------   --------
            Total segment earnings..........................    36,516     53,122
Other expenses, net.........................................   (30,982)   (20,644)
General partner's share of net income.......................      (110)      (646)
                                                              --------   --------
            Net earnings-limited partner unitholders........  $  5,424   $ 31,832
                                                              --------   --------
                                                              --------   --------
</Table>

14. NEW ACCOUNTING PRONOUNCEMENTS

    As of January 1, 2002 the Company has adopted the Statement of Financial
Accounting Standards No. 144 (SFAS 144) 'Accounting for the Impairment or
Disposal of Long-Lived Assets.' Under SFAS No. 144, the properties sold by the
Company to third parties are considered to be discontinued operations. For the
three and six months ended June 30, 2003 and 2002 the Company has reported
discontinued operations in the Consolidated Statements of Operations for the
properties disposed of to third parties, which excludes those grandfathered by
the effective date of SFAS 144. The three and six months' results for the
periods ended June 30, 2002 have been restated to conform to the 2003
presentation.

    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. 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. The Company will adopt SFAS 150 on July 1, 2003 and will
reclassify its preferred units to a liability account. See Note 10.

    In January 2003, the FASB issued Interpretation No. 46, 'Consolidation of
Variable Interest Entities, an interpretation of ARB No. 51' (FIN #46). This
Interpretation addresses the consolidation by business enterprises of variable
interest entities. The Company will adopt the provisions of FIN #46 as of July
1, 2003 and is currently evaluating the effects of this Interpretation on its
financial statements.

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

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

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

                                       15




<Page>

GENERAL

    The Company is a master limited partnership primarily engaged in acquiring
and managing real estate investments with a primary focus on office, retail,
industrial, hotel, gaming and residential properties.

    The Company believes that it will benefit from further diversification of
its portfolio of assets. To accomplish its investment objectives, the Company
may consider the acquisition or seek effective control of land development
companies and other real estate operating companies which may have a significant
inventory of quality assets under development, as well as experienced personnel.
Additionally, in selecting future real estate investments, the Company intends
to focus on assets that it believes are undervalued in the real estate market,
which investments may require substantial liquidity to maintain a competitive
advantage. The Company believes that there are still opportunities available to
acquire investments that are undervalued. These may include commercial
properties, land, assets in the gaming and entertainment industries,
non-performing loans, the securities of entities which own, manage or develop
significant real estate assets, including limited partnership units and
securities issued by real estate investment trusts and the acquisition of debt
or equity securities of companies which may be undergoing restructuring and
under-performing properties that may require active asset management and
significant capital improvements.

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

    The Company has made investments in the gaming industry and may consider
additional gaming industry investments and investments related to the
entertainment industry. Such investments may include additional casino
properties and those in the entertainment field, such as movie theater
interests, and the financing and investment in the movie production and
distribution industry. Such investments may include acquisitions from, or in
joint venture or co-management with, Icahn, the General Partner or their
affiliates, provided that the terms thereof are fair and reasonable to the
Company. Stratosphere accounted for approximately 64% and 47% of the Company's
revenues in the six months ended June 30, 2003 and 2002, respectively, and
approximately 27% and 11% of the Company's operating income in the six months
ended June 30, 2003 and 2002, respectively.

    The Company has approved an investment in the oil and gas industry and may
consider additional energy related investments. In May 2003, the Company entered
into an agreement to acquire certain debt and equity securities of National
Energy Group, Inc. and a 100% interest in an entity owning part of such debt and
equity securities from entities affiliated with and indirectly wholly-owned by
Carl C. Icahn the Chairman of the Board of the General Partner. See Note 2 to
the Consolidated Financial Statements.

    Historically, substantially all of the Company's 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 the Company is not typically
responsible for payment of expenses, such as maintenance, utilities, taxes and
insurance associated with such properties.

    By the end of the year 2005, net leases representing approximately 21% of
the Company's net annual rentals from its real estate portfolio will be due for
renewal, and by the end of the year 2007, net leases representing approximately
34% of the Company's net annual rentals will be due for renewal. Since most of
the Company's properties are net-leased to single corporate tenants, it may be
difficult and time-consuming to re-let or sell those properties that existing
tenants decline to re-let or purchase,

                                       16




<Page>

and therefore the Company may be required to incur expenditures to renovate such
properties for new tenants. In addition, the Company may become responsible for
the payment of certain operating expenses, including maintenance, utilities,
taxes, insurance and environmental compliance costs associated with such
properties, which are presently the responsibility of the tenant. As a result,
the Company could experience an adverse impact on net cash flow in the future
from such properties.

    Earnings from land, house and condominium operations have decreased
significantly in 2003 due to a decline in inventory of completed units available
for sale. This trend is expected to continue as land inventory is depleted and
cannot be replenished cost effectively. The Company has three sub-divisions,
including New Seabury, at varying stages of the municipal approval process,
which, if successful, may mitigate the down-trend.

    The Partnership Agreement permits the Company to make non-real estate
related acquisitions and to invest in securities issued by companies that are
not necessarily engaged as one of their primary activities in the ownership,
development or management of real estate while remaining in the real estate
business and continuing to pursue suitable investments for the Company in real
estate and real estate related investments.

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

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

    The Company is in the process of updating its Phase I Site Assessments for
certain of its environmentally sensitive properties including properties with
open RCRA requirements. Approximately thirty-three updates are expected to be
completed in 2003.

RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2003 COMPARED TO THREE MONTHS ENDED JUNE 30, 2002

    Gross revenues decreased by $20,382,000 or 24.2%, during the three months
ended June 30, 2003 as compared to the same period in 2002. This decrease
reflects decreases of $13,780,000 in land, house and condominium sales,
$9,238,000 in interest income on U.S. Government and Agency Obligations and
other investments, $461,000 in financing lease income and $106,000 in dividend
and other income partially offset by increases of $1,864,000 in hotel and casino
operating income, $905,000 in rental income, $343,000 in equity in earnings of
GB Holdings, Inc. and $91,000 in hotel and resort operating income. The decrease
in land, house and condominium sales is primarily due to a decrease in the
number of units sold, as approved land inventory has been depleted by sales. The
decrease in interest income on U.S. Government and Agency obligations and other
investments is primarily attributable to

                                       17




<Page>

the prepayment of a mezzanine loan in May 2002 and a decline in interest rates
on U.S. Agency obligations as higher rate bonds were called in 2002. 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 and entertainment revenues. The average
daily rate ('ADR') increased $3 to $52. However, percentage occupancy decreased
approximately 2.5% to 87.7%. The increase in rental income is primarily
attributable to a property acquisition and reclassifications of financing leases
to operating leases. The increase in equity in earnings of GB Holdings, Inc. is
primarily due to a fixed asset impairment loss in 2002.

    Expenses decreased by $8,969,000, or 14.8%, during the three months ended
June 30, 2003 as compared to the same period in 2002. This decrease reflects
decreases of $9,942,000 in the cost of land, house and condominium sales,
$298,000 in hotel and resort operating expenses, $280,000 in general and
administrative expenses, $273,000 in rental property expenses and $206,000 in
interest expense partially offset by increases of $1,969,000 in hotel and casino
operating expenses and $61,000 in depreciation and amortization. The decrease in
the cost of land, house and condominium sales is due to decreased sales as
discussed above. Costs as a percentage of sales decreased from 71% in 2002 to
58% in 2003 primarily due to higher margin sales in 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 was 85% in 2003 and 2002.

    Operating income decreased during the three months ended June 30, 2003 by
$11,413,000 as compared to the same period in 2002 as detailed above.

    Earnings from land, house and condominium operations decreased in three
months ended June 30, 2003 compared to the same period in 2002 due to a decline
in inventory of completed units available for sale. Based on current
information, sales will decline significantly during the rest of 2003 as
compared to 2002. The decrease in land inventory in approved sub-divisions is
expected to continue to have a negative impact on earnings from this business
segment.

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

    Gain on property transactions from continuing operations decreased by
$272,000 during the three months ended June 30, 2003 as compared to the same
period in 2002.

    A provision for loss on real estate of $926,000 was recorded in the three
months ended June 30, 2002 . No such provision was recorded in 2003.

    A write-down of equity securities available for sale of $8,476,000 was
recorded in the three months ended June 30, 2002. There was no such write-down
in the comparable period of 2003.

    A write-down of mortgages and notes receivable of $18,798,000, pertaining to
the Company's investment in the Philip Notes, was recorded in the three months
ended June 30, 2003. There was no such write-down in the comparable period of
2002.

    Minority interest in the net earnings of Stratosphere Corporation was
$589,000 during the three months ended June 30, 2002. As a result of the
acquisition of the minority interest in December 2002, there will be no minority
interest in Stratosphere in 2003 and thereafter.

    Income from continuing operations decreased by $20,492,000 in the three
months ended June 30, 2003 as compared to the same period in 2002 as detailed
above.

    Income from discontinued operations increased by $1,887,000 in the three
months ended June 30, 2003 as compared to the same period in 2002 due to gains
on property dispositions.

    Net earnings for the three months ended June 30, 2003 decreased by
$18,605,000 as compared to the three months ended June 30, 2002 primarily due to
a write-down of mortgages and notes receivable ($18.8 million), decreased
interest income ($9.2 million) and decreased earnings from land, house and
condominium operations ($3.8 million) partially offset by a write-down of equity
securities available for sale in 2002 ($8.5 million), an increase in income from
discontinued operations ($1.9 million) and decreased provision for loss on real
estate ($.9 million).

                                       18




<Page>

SIX MONTHS ENDED JUNE 30, 2003 COMPARED TO SIX MONTHS ENDED JUNE 30, 2002

    Gross revenues decreased by $34,559,000, or 21.25%, during the six months
ended June 30, 2003 as compared to the same period in 2002. This decrease
reflects decreases of $28,049,000 in land, house and condominium sales,
$10,796,000 in interest income on U.S. Government and Agency Obligations and
other investments, $2,070,000 in equity in earnings of GB Holdings, Inc.,
$967,000 in financing lease income and $39,000 in dividend and other income
partially offset by increases of $5,355,000 in hotel and casino operating
income, $1,521,000 in rental income and $486,000 in hotel and resort operating
income. The decrease in land, house and condominium sales is primarily due to a
decrease in the number of units sold, as approved land inventory has been
depleted by sales. The decrease in interest income on U.S. Government and Agency
obligations and other investments is primarily attributable to the prepayment of
a mezzanine loan in 2002 and a decline in interest rates on U.S. 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
were added in 2002 as well as the inclement weather in Atlantic City, NJ in 2003
(including blizzard conditions during Presidents' Day weekend) and a gaming loss
of $1 million to a high-end patron which was partially offset by decreased
casino expenses. 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 gaming, hotel and food and beverage revenues and
a decrease in promotional allowances. The average daily rate ('ADR') increased
$2 to $51 and percentage occupancy increased approximately 0.4% to 88.6%. The
increase in rental income is primarily attributable to a property acquisition
and reclassifications of financing leases to operating leases. The increase in
hotel and resort operating income is primarily attributable to increased
membership dues at the New Seabury resort and Florida golf course.

    Expenses decreased by $16,062,000, or 13.2%, during the six months ended
June 30, 2003 as compared to the same period in 2002. This decrease reflects
decreases of $19,668,000 in the cost of land, house and condominium sales,
$1,085,000 in interest expense, $286,000 in hotel and resort operating expenses
and $268,000 in general and administrative expenses partially offset by
increases of $4,414,000 in hotel and casino operating expenses, $760,000 in
depreciation and amortization and $71,000 in rental property expenses. The
decrease in the cost of land, house and condominium sales is due to decreased
sales as discussed above. Costs as a percentage of sales increased from 72% in
2002 to 78% in 2003 primarily due to lower margin sales in 2003. The decrease in
interest expense is primarily due to repayment of debt to affiliates in May of
2002 in connection with the Sands repurchase obligation. The increase in hotel
and casino operating expenses is primarily attributable to increased costs
associated with increased revenues. Costs as a percentage of sales was 85% in
2003 and 2002. The increase in depreciation expense is primarily attributable to
an increase in rental real estate and resort properties.

    Operating income decreased during the six months ended June 30, 2003 by
$18,497,000 as compared to the same period in 2002 as detailed above.

    Earnings from land, house and condominium operations decreased in six months
ended 2003 compared to the same period in 2002 due to a decline in inventory of
completed units available for sale. Based on current information, sales will
decline significantly during the rest of 2003 as compared to 2002. The decrease
in land inventory in approved sub-divisions is expected to continue to have a
negative impact on earnings from this business segment.

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

    Gain on property transactions from continuing operations decreased by
$773,000 during the six months ended June 30, 2003 as compared to the same
period in 2002 due to the size and number of transactions.

    A provision for loss on real estate of $200,000 was recorded in the six
months ended June 30, 2003 as compared to $926,000 in 2002.

    A write-down of marketable equity securities available for sale of $961,000
was recorded in the six months ended June 30, 2003 as compared to a write-down
of $8,476,000 in 2002.

                                       19




<Page>

    A write-down of mortgages and notes receivable of $18,798,000, pertaining to
the Company's investment in the Philip Notes, was recorded in the six months
ended June 30, 2003. There was no such write-down in the comparable period of
2002.

    Minority interest in the net earnings of Stratosphere Corporation was
$996,000 during the six months ended June 30, 2002. As a result of the
acquisition of the minority interest in December 2002, there will be no minority
interest in Stratosphere in 2003 and thereafter.

    Income from continuing operations decreased by $28,831,000 in the six months
ended June 30, 2003 as compared to the same period in 2002 as detailed above.

    Income from discontinued operations increased by $1,887,000 in the six
months ended June 30, 2003 as compared to the same period in 2002 due to gains
on property dispositions.

    Net earnings for the six months ended June 30, 2003 decreased by $26,944,000
as compared to the six months ended June 30, 2002 primarily due to a write-down
of mortgages and notes receivable ($18.8 million), decreased earnings from land,
house and condominium operations ($8.4 million) and decreased interest income
($10.8 million) partially offset by a decrease in write-down of equity
securities available for sale ($7.5 million) and an increase in income from
discontinued operations ($1.9 million).

CAPITAL RESOURCES AND LIQUIDITY

    Net cash provided by operating activities was $39.8 million for the six
months ended June 30, 2003 as compared to $60.5 million in the comparable period
of 2002. This decrease resulted primarily from a decrease in interest income
($10.8 million), a decrease in land, house and condominium operations ($8.4
million) and a decrease in cash flow from the other operations ($1.5 million).
The Company expects the decrease in land inventory in approved sub-divisions to
continue to negatively impact cash flow from land, house and condominium
operations.

    The following table reflects the Company's contractual cash obligations,
subject to certain conditions, due over the indicated periods and when they come
due (in $millions):

<Table>
<Caption>
                                               LESS THAN    1-3     4-5     AFTER
                                                1 YEAR     YEARS   YEARS   5 YEARS   TOTAL
                                                ------     -----   -----   -------   -----
<S>                                            <C>         <C>     <C>     <C>       <C>
Mortgages payable............................   $  6.6     $21.1   $76.2    $80.6    $184.5
Mezzanine loan commitments...................     20.0      --      --       --        20.0
Acquisition of National Energy Group, Inc....    148.6      --      --       --       148.6
Construction and development obligations.....     15.0      --      --       --        15.0
                                                ------     -----   -----    -----    ------
    Total....................................   $190.2     $21.1   $76.2    $80.6    $368.1
                                                ------     -----   -----    -----    ------
                                                ------     -----   -----    -----    ------
</Table>

    In May 2003, the Company entered into an agreement to acquire certain debt
and equity securities of National Energy Group, Inc. ('NEG') and a 100% interest
in an entity owning part of such debt and equity securities from entities
affiliated with and indirectly wholly-owned by Carl C. Icahn, the Chairman of
the Board of the General Partner. NEG owns an interest in entities primarily
involved in owning and operating oil and gas properties and manages the oil and
gas operations of such entities.

    The aggregate consideration to be paid will be approximately $148 million,
plus unpaid but accrued interest on the debt securities through closing. Upon
closing this transaction, the Company will beneficially own in excess of 50% of
the issued and outstanding common stock of NEG and 100% of its outstanding
10 3/4% Senior Notes, due November 1, 2006, in the aggregate principal amount of
$148,637,000. The closing of the transaction is subject to certain conditions,
including among other things, the approval of the shareholders of NEG of certain
amendments to its certificate of incorporation and subsequent action by NEG's
board of directors pursuant to such amendments. There is no assurance that this
transaction will be consummated.

    In 2003, seventeen leases covering seventeen properties and representing
approximately $2.2 million in annual rentals have expired or are scheduled to
expire. Twelve leases originally representing $1.6 million in annual rental
income were renewed for $1,388,000 in annual rentals. Such renewals are

                                       20




<Page>

generally for a term of five years. Five properties with annual rental income of
$613,000 were not renewed and are currently being marketed for sale or lease.

    On March 31, 2003, the Board of Directors of the General Partner announced
that no distributions on its Depositary Units are expected to be made in 2003.
The Company believes that it should continue to hold and invest, rather than
distribute, cash. In making its announcement, the Company noted it plans to
continue to apply available cash flow toward its operations, repayment of
maturing indebtedness, tenant requirements, investments, acquisitions and other
capital expenditures and cash reserves for Partnership contingencies including
environmental matters and scheduled lease expirations. By the end of the year
2005, net leases representing approximately 21% of the Company's net annual
rentals will be due for renewal, and by the end of the year 2007, 34% of such
rentals will be due for renewal. Another factor that the Company took into
consideration was that net leases representing approximately 26% of the
Company's annual rentals are with tenants in the retail sector, some of which
are currently experiencing cash flow difficulties and restructurings.

    The types of investments the Company is pursuing, including assets that may
not be readily financeable or generating positive cash flow, such as development
properties, non-performing mortgage loans or securities of companies which may
be undergoing restructuring or require significant capital investments, require
the Company 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 $6.8 million in the six months ended June 30, 2003. During the
comparable period of 2002, sales proceeds totaled approximately $5.6 million.
The Company intends to use asset sales, financing and refinancing proceeds for
new investments.

    Capital expenditures for real estate, and hotel, casino and resort
operations were approximately $3.8 million and $2.0 million during the six
months ended June 30, 2003 and 2002, respectively. In 2003, capital expenditures
are currently expected to be approximately $12 million.

    During the six months ended June 2003 and 2002, approximately $3.5 million
of mortgage principal payments were repaid. In addition, in the six months ended
June 30, 2003, approximately $16.2 million of net refinancing proceeds were
received.

    The Company may possibly consider making tender offers for real estate
operating companies and real estate limited partnership units. The Company may
also consider indirect investments in real estate by making loans secured by
ownership interests of certain real properties.

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

    The Company's cash and cash equivalents and investment in U.S. Government
and Agency obligations increased by $27 million during the six months ended
June 30, 2003 primarily due to net cash flow from operations ($39.8 million),
net refinancing proceeds ($16.2 million) and miscellaneous other items ($2.0
million) partially offset by mezzanine loan advances ($31.0 million).

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS

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

    Other related risks include liquidity risks, which arise in the course of
the Company's general funding activities and the management of its balance
sheet. This includes both risks relating to the

                                       21




<Page>

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

    The Company invests in U.S. Government and Agency obligations which are
subject to interest rate risk. As interest rates fluctuate, the Company will
experience changes in the fair value of these investments with maturities
greater than one year. If interest rates increased 200 basis points, the fair
value of these investments at June 30, 2003, would decline by approximately
$500,000.

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

ITEM 4. CONTROLS AND PROCEDURES

    a. As of June 30, 2003, the Company's management, including the Company's
Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness
of the design and operation of the Company's and its subsidiaries' disclosure
controls and procedures pursuant to the Exchange Act Rule 13a-14. Based upon
that evaluation, the Company's Chief Executive Officer and Chief Financial
Officer concluded that the Company's disclosure controls and procedures are
effective in timely alerting them to material information relating to the
Company (including its consolidated subsidiaries) required to be included in the
Company's periodic Securities and Exchange Commission filings.

    b. There have been no significant changes in the Company's internal controls
or in other factors that could significantly affect internal controls subsequent
to the evaluation date.

                                       22




<Page>

                           PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

    a. In January 2002, the Cape Cod Commission (the 'Commission'), a
Massachusetts regional planning body created in 1989, concluded that the
Company's New Seabury development proposal 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 exempt from the Commission's jurisdiction and that the Commission is barred
from exercising jurisdiction pursuant to a 1993 settlement agreement between the
Commission and a prior owner of the New Seabury property.

    In February 2002, New Seabury Properties LLC ('New Seabury'), the Company's
subsidiary and owner of the property, filed a civil complaint in Barnstable
County Massachusetts Superior Court appealing the Administrative Decision by the
Commission and a separate complaint to find the Commission in contempt of the
1993 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 which are currently pending before the
Court.

    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. New Seabury may seek to amend the pending proceedings to
incorporate an appeal from the July 2003 administrative decision. 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.

    b. 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 (Stratosphere Corporation, Stratosphere Development, LLC and
American Real Estate Holding Limited Partnership are herein 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 services on construction 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 have 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 $371,873 were disbursed to
Tiffiny and Great Western, 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 addition, in the ordinary course of business, the Company is party to
various legal actions. In management's opinion, the ultimate outcome of such
legal actions will not have a material effect on the results of operations or
the financial position of the Company.

                                       23




<Page>

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

    (a)  8K dated April 7, 2003 -- American Real Estate Partners, L.P. Reports
         Full Year and Fourth Quarter Results and that no Distributions are
         Expected to be Made in 2003

    (b)  8-K dated May 16, 2003 -- American Real Estate Partners, L.P. Agrees
         to Acquire Certain Securities of National Energy Group, Inc.

    (c)  8-K dated May 16, 2003 -- American Real Estate Partners, L.P. Reports
         First Quarter Results

EXHIBITS:

    31   Certification of Chief Executive Officer -- Sarbanes-Oxley Act of
         2002 -- Section 302(a)

    31.1 Certification of Chief Financial Officer -- Sarbanes-Oxley Act of
         2002 -- Section 302(a)

    32   Certification of Principal Executive Officer -- Sarbanes-Oxley Act of
         2002 -- Section 906

    32.1 Certification of Principal Financial Officer -- Sarbanes-Oxley Act of
         2002 -- Section 906

                                       24




<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 thereunto duly authorized.

                                          AMERICAN REAL ESTATE PARTNERS, L.P.

                                          By: American Property Investors, Inc.

                                                  /s/ John P. Saldarelli
                                           .....................................
                                            TREASURER, CHIEF FINANCIAL OFFICER
                                             AND PRINCIPAL ACCOUNTING OFFICER

Date: August 14, 2003

                                       25