S-4
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As filed with the Securities and Exchange Commission on June 21, 2005
Registration No. 333-            
 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
 
AMERICAN REAL ESTATE PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
         
Delaware   6512   13-3398766
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)
AMERICAN REAL ESTATE FINANCE CORP.
(Exact name of registrant as specified in its charter)
         
Delaware   6512   20-1059842
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)
 
AMERICAN REAL ESTATE HOLDINGS LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
         
Delaware   6512   13-3398767
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)
 
100 South Bedford Road
Mt. Kisco, New York 10549
(Address, including zip code, and telephone number,
including area code, of registrants’ principal executive offices)
 
John P. Saldarelli
Vice President and Chief Financial Officer
100 South Bedford Road
Mt. Kisco, New York 10549
Telephone: (914) 242-7700
Facsimile: (914) 242-9282
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Steven L. Wasserman, Esq.
James T. Seery, Esq.
DLA Piper Rudnick Gray Cary US LLP
1251 Avenue of the Americas
New York, New York 10020
Telephone: (212) 835-6000
Facsimile: (212) 835-6001
 
        Approximate date of commencement of the proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.
        If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.    o
        If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o
        If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o
 
CALCULATION OF REGISTRATION FEE
                 
 
 
    Proposed Maximum   Proposed Maximum    
Title of Each Class of   Amount to be   Offering Price   Aggregate   Amount of
Securities to be Registered   Registered(1)   Per Unit(1)   Offering Price(1)   Registration Fee(2)
 
71/8% Senior Notes due 2013
  $480,000,000   100%   $480,000,000   $56,496
 
Guarantees(3)
       
 
 
(1)  Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457 under the Securities Act of 1933, as amended.
 
(2)  Pursuant to Rule 457(f)(2) of the Securities Act of 1933, as amended, the registration fee has been estimated based on the book value of the securities to be received by the registrant in exchange for the securities to be issued hereunder in the exchange offer described herein.
 
(3)  Pursuant to Rule 457(n) under the Securities Act, no separate fee is payable with respect to the guarantees.
        The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
 
 


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The information in this Preliminary Prospectus is not complete and may be changed. We may not exchange these securities until the Registration Statement filed with the Securities and Exchange Commission is effective. This Preliminary Prospectus is not an offer to exchange these securities and is not soliciting offers to exchange these securities in any State where the exchange is not permitted.
SUBJECT TO COMPLETION DATED JUNE 21, 2005
PROSPECTUS
 
$480,000,000
AMERICAN REAL ESTATE PARTNERS, L.P.
AMERICAN REAL ESTATE FINANCE CORP.
OFFER TO EXCHANGE OUR 71/8% SENIOR NOTES DUE 2013, WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, FOR ANY AND ALL OF OUR OUTSTANDING 71/8% SENIOR NOTES DUE 2013
 
MATERIAL TERMS OF THE EXCHANGE OFFER
•  The terms of the new notes are substantially identical to the outstanding notes, except that the transfer restrictions and registration rights relating to the outstanding notes will not apply to the new notes and the new notes will not provide for the payment of liquidated damages under circumstances related to the timing and completion of the exchange offer.
 
•  Expires 5:00 p.m., New York City time, on                     , 2005, unless extended.
 
•  We will exchange your validly tendered unregistered notes for an equal principal amount of a new series of notes which have been registered under the Securities Act of 1933.
 
•  The exchange offer is not subject to any condition other than that the exchange offer not violate applicable law or any applicable interpretation of the staff of the Securities and Exchange Commission and other customary conditions.
 
•  You may withdraw your tender of notes at any time before the exchange offer expires.
 
•  The exchange of notes should not be a taxable exchange for U.S. federal income tax purposes.
 
•  We will not receive any proceeds from the exchange offer.
 
•  The new notes will not be traded on any national securities exchange and, therefore, we do not anticipate that an active public market in the new notes will develop.
 
      Please refer to “Risk Factors” beginning on page 12 of this document for certain important information.
      Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the notes to be issued in the exchange offer or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
The date of this prospectus                , 2005


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    F-1  
 EX-12.1: RATIO OF EARNINGS TO FIXED CHARGES
 EX-23.1: CONSENT OF GRANT THORNTON LLP
 EX-23.2: CONSENT OF KPMG LLP
 EX-23.3: CONSENT OF GRANT THORNTON LLP
 EX-23.4: CONSENT OF GRANT THORNTON LLP
 EX-23.5: CONSENT OF GRANT THORNTON LLP
 EX-23.6: CONSENT OF KPMG LLP
 EX-23.7: CONSENT OF PANNELL KERR FORSTER OF TEXAS P.C.
 EX-23.8: CONSENT OF KPMG LLP
 EX-23.9: CONSENT OF NETHERLAND, SEWELL & ASSOCIATES, INC.
      We have not authorized any dealer, salesperson or other person to give any information or to make any representations to you other than the information contained in this prospectus. You must not rely on any information or representations not contained in this prospectus as if we had authorized it. This prospectus does not offer to sell or solicit any offer to buy any securities other than the registered notes to which it relates, nor does it offer to buy any of these notes in any jurisdiction from any person to whom it is unlawful to make such offer or solicitation in such jurisdiction.
      The information contained in this prospectus is current only as of the date on the cover page of this prospectus, and may change after that date. We do not imply that there has been no change in the information contained in this prospectus or in our affairs since that date by delivering this prospectus.

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PROSPECTUS
      You should read the entire prospectus, including “Risk Factors” and the financial statements and related notes, before making an investment decision. Unless the context indicates otherwise, all references to “American Real Estate Partners, L.P.,” “AREP,” “we,” “our,” “ours” and “us” refer to American Real Estate Partners, L.P. and, unless the context otherwise indicates, include our subsidiaries. Our general partner is American Property Investors, Inc., or API.
      American Real Estate Partners, L.P. is a diversified holding company engaged in a variety of businesses. Our primary business strategy is to continue to grow our core businesses, including real estate, gaming and entertainment, and oil and gas. Our businesses currently include rental real estate; real estate development; hotel and resort operations; hotel and casino operations; oil and gas exploration and production; and investments in equity and debt securities. In addition, we seek to acquire undervalued assets and companies that are distressed or in out of favor industries. We may also seek opportunities in other sectors, including energy, industrial manufacturing and insurance and asset management.
      Our general partner is American Property Investors, Inc., a Delaware corporation, which is a wholly owned subsidiary of Beckton Corp., a Delaware corporation. All of the outstanding capital stock of Beckton Corp. is owned by Carl C. Icahn. Substantially all of our businesses are conducted and our assets held through a subsidiary limited partnership, American Real Estate Holdings Limited Partnership, or AREH, in which we own a 99% limited partnership interest. API also acts as the general partner for AREH. API has a 1% general partnership interest in each of us and AREH. As of May 1, 2005, affiliates of Mr. Icahn beneficially owned 39,896,836 units representing AREP limited partner interests, or the depositary units, representing approximately 86.5% of the outstanding depositary units, and 9,346,044 cumulative pay-in-kind redeemable preferred units, representing AREP limited partner interests, or the preferred units, representing approximately 86.5% of the outstanding preferred units.
The Acquisitions
      In continuation of our strategy to grow our core businesses, we have recently acquired, and have entered into agreements to acquire, additional gaming and entertainment and oil and gas assets from affiliates of Mr. Icahn. The completed or pending acquisitions are described as the “Acquisitions.”
Recently Completed Acquisition
      On April 6, 2005, we acquired TransTexas Gas Corporation, or TransTexas, pursuant to a merger agreement dated January 21, 2005, for a purchase price of $180.0 million in cash. TransTexas was owned by Highcrest Investors Corp., or Highcrest, an entity indirectly wholly-owned by Mr. Icahn.
      TransTexas and its wholly-owned subsidiaries, Galveston Bay Pipeline Company, or Galveston Bay Pipeline, and Galveston Bay Processing Company, or Galveston Bay Processing, are engaged in the exploration, production and transmission of natural gas and oil, primarily in South Texas, including the Eagle Bay field in Galveston Bay and the Southwest Bonus field in Wharton County. Its exploration and production activities consist of geological and geophysical evaluation of current and prospective properties, the acquisition of mineral interests in prospects and the drilling, development and operation of leased properties for the production and sale of natural gas, condensate and crude oil. TransTexas operates substantially all of its producing properties.
Pending Acquisitions
      The following describes the terms of the agreements for the acquisitions of NEG Holding LLC, or NEG Holding, Panaco, Inc., or Panaco, and GB Holding, Inc., or GB Holding, which acquisitions have not been completed.

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NEG Holding LLC
      On January 21, 2005, we entered into a membership interest purchase agreement, or the NEG purchase agreement, with Gascon Partners, or Gascon, Cigas Corp., or Cigas, and Astral Gas Corp., or Astral, pursuant to which we will purchase Gascon’s managing membership interest in NEG Holding for a purchase price of up to 11,344,828 of our depositary units, valued at $29.00 per unit, or an aggregate of up to $329.0 million. Gascon, Cigas and Astral are all directly or indirectly wholly owned by Mr. Icahn. The number of depositary units to be issued was based on NEG Holding’s estimates of its and its subsidiaries’ oil and gas reserves. The reserve estimates are subject to confirmation by independent oil and gas reserve engineers, and the number of depositary units to be issued is subject to reduction, but not an increase, in accordance with the reserves determined by the engineers. The other member of NEG Holding is National Energy Group, Inc., or NEG, of which we own 50.01% of the common stock.
      NEG Holding is developing and exploiting existing properties by drilling development and exploratory wells, and recompleting and reworking existing wells. NEG Holding anticipates that it will continue its drilling operations on existing properties and will selectively participate in drilling opportunities generated by third parties. NEG Holding also seeks to acquire existing producing properties or interests in them.
Panaco, Inc.
      On January 21, 2005, we and National Offshore LP, or National Offshore, the 1% general partnership interest of which and the 99% limited partnership interest of which are owned, respectively, by two limited liability companies, each of which is a wholly-owned subsidiary of AREP, entered into an agreement and plan of merger with Highcrest, Arnos Corp., or Arnos, and Panaco, or the Panaco merger agreement, pursuant to which Panaco will merge with and into National Offshore, all of the common stock of Panaco will be canceled and cease to exist, and Highcrest and Arnos will be paid merger consideration of up to 4,310,345 depositary units, valued at $29.00 per unit, or an aggregate of up to $125.0 million. Highcrest and Arnos are indirectly wholly-owned by Mr. Icahn. The number of depositary units to be issued was based on Panaco’s estimates of its oil and gas reserves. The reserve estimates are subject to confirmation by independent oil and gas reserve engineers, and the number of depositary units to be issued is subject to reduction, but not an increase, in accordance with the reserves determined by the engineers.
      Panaco is an oil and gas exploration and production company focused primarily on opportunities in the Gulf Coast Region and offshore opportunities in the Gulf of Mexico. Panaco is in the business of selling oil and gas produced on properties it leases, to third party purchasers. It obtains reserves of crude oil and gas by either buying them from others or drilling developmental and exploratory wells on acquired properties. It acquires producing properties with a view toward further exploitation and development, capitalizing on 3-D seismic and advanced directional drilling technology to recover reserves that were bypassed or previously overlooked.
GB Holdings, Inc. (The Sands)
      On January 21, 2005, we entered into a purchase agreement, or the Sands purchase agreement, with Cyprus, LLC, or Cyprus pursuant to which we will purchase 4,121,033 shares of common stock of GB Holdings and 1,133,284 shares of common stock of Atlantic Coast Entertainment Holdings, Inc., or Atlantic Holdings. Cyprus is indirectly wholly-owned by Mr. Icahn. The purchase price to be paid for these securities is 413,793 depositary units, valued at $29.00 per unit, or an aggregate of $12.0 million, plus up to an additional 206,897 depositary units, valued at $29.00 per unit, or an aggregate of $6.0 million, to be paid after closing if Atlantic Holdings meets certain earnings targets during 2005 and 2006.
      GB Holdings has no operating activities. Its significant asset is approximately 2,882,937 shares of common stock of Atlantic Holdings, representing approximately 41.7% of the currently outstanding Atlantic Holdings common stock and 28.8% of the Atlantic Holdings common stock on a fully diluted basis. Atlantic Holdings is the parent company of ACE Gaming LLC. The principal business activity of ACE Gaming is its ownership and operation of The Sands Hotel and Casino. The Sands Hotel and Casino is located in Atlantic City, New Jersey, on approximately 6.1 acres of land one-half block from the Boardwalk at Brighton Park

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between Indiana Avenue and Dr. Martin Luther King, Jr. Boulevard. The Sands Hotel and Casino facility currently consists of: a casino and simulcasting facility with approximately 78,000 square feet of gaming space containing approximately 2,200 slot machines and 73 table games; two hotels with a total of 620 rooms, including 170 suites; five restaurants; two cocktail lounges; two private lounges for invited guests; an 800-seat cabaret theater; retail space; an adjacent nine-story office building with approximately 77,000 square feet of office space for its executive, financial and administrative personnel; the “People Mover,” an elevated, enclosed, one-way moving sidewalk connecting The Sands Hotel and Casino to the Boardwalk using air rights granted by an easement from the City of Atlantic City and garage and surface parking for approximately 1,750 vehicles.
Unitholder Approval
      Under the rules of the New York Stock Exchange, on which our depositary and preferred units are listed, the issuance of depositary units pursuant to the NEG purchase agreement, the Panaco merger agreement and the Sands purchase agreement requires the approval of the holders of our depositary units. The solicitation of consent of holders of our depositary units expires at 5 p.m. Eastern Standard Time on June 28, 2005. The written consent of affiliates of Mr. Icahn, as record owners of more than a majority of the depositary units, is sufficient to approve the issuance of the depositary units in connection with the Acquisitions. Mr. Icahn intends to have consents executed and delivered that approve the issuance of the depositary units.

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Summary of the Exchange Offer
The Offering of the Private Notes On February 7, 2005, we issued $480 million aggregate principal amount of our private notes in an offering not registered under the Securities Act of 1933. At the time we issued the private notes, we entered into a registration rights agreement in which we agreed to offer to exchange the private notes for new notes which have been registered under the Securities Act of 1933. This exchange offer is intended to satisfy that obligation.
 
The Exchange Offer We are offering to exchange the new notes which have been registered under the Securities Act of 1933 for the private notes. As of this date, there is $480 million aggregate principal amount of private notes outstanding.
 
Required Representations In order to participate in this exchange offer, you will be required to make certain representations to us in a letter of transmittal, including that:
 
• any new notes will be acquired by you in the ordinary course of your business;
 
• you have not engaged in, do not intend to engage in, and do not have an arrangement or understanding with any person to participate in a distribution of the new notes; and
 
• you are not an affiliate of our company.
 
Resale of New Notes We believe that, subject to limited exceptions, the new notes may be freely traded by you without compliance with the registration and prospectus delivery provisions of the Securities Act of 1933, provided that:
 
• you are acquiring new notes in the ordinary course of your business;
 
• you are not participating, do not intend to participate and have no arrangement or understanding with any person to participate in the distribution of the new notes; and
 
• you are not an affiliate of our company.
 
If our belief is inaccurate and you transfer any new note issued to you in the exchange offer without delivering a prospectus meeting the requirements of the Securities Act of 1933 or without an exemption from registration of your new notes from such requirements, you may incur liability under the Securities Act of 1933. We do not assume, or indemnify you against, such liability.
 
Each broker-dealer that is issued new notes for its own account in exchange for private notes which were acquired by such broker-dealer as a result of market-making or other trading activities also must acknowledge that it has not entered into any arrangement or understanding with us or any of our affiliates to distribute the new notes and will deliver a prospectus meeting the requirements of the Securities Act of 1933 in connection with any resale of the new notes issued in the exchange offer.

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We have agreed in the registration rights agreement that a broker-dealer may use this prospectus for an offer to resell, resale or other retransfer of the new notes issued to it in the exchange offer.
 
Expiration Date The exchange offer will expire at 5:00 p.m., New York City time, on                     , 2005, unless extended, in which case the term “expiration date” shall mean the latest date and time to which we extend the exchange offer.
 
Conditions to the Exchange Offer The exchange offer is subject to certain customary conditions, which may be waived by us. The exchange offer is not conditioned upon any minimum principal amount of private notes being tendered.
 
Procedures for Tendering Private Notes If you wish to tender your private notes for exchange, you must transmit to Wilmington Trust Company, as exchange agent, at the address set forth in this prospectus under the heading “The Exchange Offer — Exchange Agent,” and on the front cover of the letter of transmittal, on or before the expiration date, a properly completed and duly executed letter of transmittal, which accompanies this prospectus, or a facsimile of the letter of transmittal and either:
 
• the private notes and any other required documentation, to the exchange agent; or
 
• a computer generated message transmitted by means of The Depository Trust Company’s Automated Tender Offer Program system and received by the exchange agent and forming a part of a confirmation of book entry transfer in which you acknowledge and agree to be bound by the terms of the letter of transmittal.
 
If either of these procedures cannot be satisfied on a timely basis, then you should comply with the guaranteed delivery procedures described below. By executing the letter of transmittal, each holder of private notes will make certain representations to us described under “The Exchange Offer — Procedures for Tendering.”
 
Special Procedures for Beneficial Owners If you are a beneficial owner whose private notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and you wish to tender your private notes in the exchange offer, you should contact such registered holder promptly and instruct such registered holder to tender on your behalf. If you wish to tender on your own behalf, you must, prior to completing and executing the letter of transmittal and delivering your private notes, either make appropriate arrangements to register ownership of the private notes in your name or obtain a properly completed bond power from the registered holder. The transfer of registered ownership may take considerable time and may not be able to be completed prior to the expiration date.
 
Guaranteed Delivery Procedures If you wish to tender private notes and time will not permit the documents required by the letter of transmittal to reach the exchange agent prior to the expiration date, or the procedure for book-entry transfer cannot be completed on a timely basis, you

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must tender your private notes according to the guaranteed delivery procedures described under “The Exchange Offer — Guaranteed Delivery Procedures.”
 
Acceptance of Private Notes and Delivery of New Notes Subject to the conditions described under “The Exchange Offer — Conditions,” we will accept for exchange any and all private notes which are validly tendered in the exchange offer and not withdrawn, prior to 5:00 p.m., New York City time, on the expiration date.
 
Withdrawal Rights You may withdraw your tender of private notes at any time prior to 5:00 p.m., New York City time, on the expiration date, subject to compliance with the procedures for withdrawal described in this prospectus under heading “The Exchange Offer — Withdrawal of Tenders.”
 
Federal Income Tax Consequences For a discussion of the material federal income tax considerations relating to the exchange of private notes for the new notes as well as the ownership of the new notes, see “Certain U.S. Federal Income Tax Consequences.”
 
Exchange Agent The Wilmington Trust Company is serving as the exchange agent. The address, telephone number and facsimile number of the exchange agent are set forth in this prospectus under the heading “The Exchange Offer — Exchange Agent.”
 
Consequences of Failure to Exchange Private Notes If you do not exchange private notes for new notes, you will continue to be subject to the restrictions on transfer provided in the private notes and in the indenture governing the private notes. In general, the unregistered private notes may not be offered or sold, unless they are registered under the Securities Act of 1933, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act of 1933 and applicable state securities laws.

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The New Notes
      The terms of the new notes we are issuing in this exchange offer and the private notes that are outstanding are identical in all material respects except:
  •  The new notes will be registered under the Securities Act of 1933;
 
  •  The new notes will not contain transfer restrictions and registration rights that relate to the private notes.
      The new notes will evidence the same debt as the old notes and will be governed by the same indenture. References to notes include both private notes and new notes.
Issuer AREP is a holding company. Its operations are conducted through its subsidiaries and substantially all of its assets consist of a 99% limited partnership interest in its subsidiary, American Real Estate Holdings Limited Partnership, or AREH, which is a holding company for its operating subsidiaries and investments. The new notes will be guaranteed by AREH.
 
Co-Issuer American Real Estate Finance Corp., or AREP Finance, is a wholly-owned subsidiary of AREP. It was formed solely for the purpose of serving as a co-issuer of debt securities of AREP in order to facilitate offerings of the debt securities. Other than as a co-issuer of the notes, AREP Finance does not and will not have any operations or assets and will not have any revenues. As a result, holders of the notes should not expect AREP Finance to participate in servicing any obligations on the new notes.
 
Notes Offered $480.0 million in aggregate principal amount of 71/8% senior notes due 2013.
 
Maturity February 15, 2013.
 
Interest Payment Dates February 15 and August 15 of each year, commencing August 15, 2005.
 
Ranking The new notes and the guarantee will rank equally with all of our and the guarantor’s existing and future senior unsecured indebtedness, and will rank senior to all of our and the guarantor’s existing and future subordinated indebtedness. The new notes and the guarantee will be effectively subordinated to all of our and the guarantor’s existing and future secured indebtedness, to the extent of the collateral securing such indebtedness. The new notes and the guarantee also will be effectively subordinated to all indebtedness and other liabilities, including trade payables, of all our subsidiaries other than AREH. As of March 31, 2005, the new notes and the guarantee would have been effectively subordinated to an aggregate of $295.2 million of AREH’s secured debt and our subsidiaries’ debt, excluding trade payables.
 
Guarantee If we cannot make payments on the new notes when they are due, AREH must make them instead. Other than AREH, none of our subsidiaries will guarantee payments on the new notes.
 
Optional Redemption We may, at our option, redeem some or all of the new notes at any time on or after February 15, 2009, at the redemption prices listed under “Description of Notes — Optional Redemption.”

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In addition, prior to February 15, 2008, we may, at our option, redeem up to 35% of the new notes with the proceeds of certain sales of our equity at the redemption price listed under “Description of Notes — Optional Redemption.” We may make the redemption only if, after the redemption, at least 65% of the aggregate principal amount of the notes issued remains outstanding.
 
Redemption Based on Gaming Laws The new notes are subject to mandatory disposition and redemption requirements following certain determinations by applicable gaming authorities.
 
Certain Covenants We will issue the new notes under an indenture with AREH and Wilmington Trust Company, as trustee acting on your behalf. The indenture will, among other things, restrict our and AREH’s ability to:
 
• Incur additional debt;
 
• Pay dividends and make distributions;
 
• Repurchase equity securities;
 
• Create liens;
 
• Enter into transactions with affiliates; and
 
• Merge or consolidate.
 
Our subsidiaries other than AREH will not be restricted in their ability to incur debt, create liens or merge or consolidate.
 
Absence of Established Market for Notes The new notes will be new securities for which there is currently no market. We cannot assure you that a liquid market for the new notes will develop or be maintained.

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AREP, AREH and AREP Finance Information
      AREP is a publicly traded master limited partnership formed in Delaware on February 17, 1987. Mr. Icahn, through affiliates, owns approximately 86.5% of our depositary units and preferred units. Our general partner is American Property Investors, Inc., or API, a Delaware corporation, which is a wholly-owned subsidiary of Beckton Corp., a Delaware corporation. All of the outstanding capital stock of Beckton is owned by Mr. Icahn. Affiliates of Mr. Icahn acquired API in 1990. Substantially all of our businesses are conducted and assets are held through a Delaware limited partnership, AREH, formed on February 17, 1987, in which we own a 99% limited partnership interest. API also acts as the general partner for AREH. API has a 1% general partnership interest in each of us and AREH. Our, AREH’s and API’s principal business address is 100 South Bedford Road, Mt. Kisco, New York 10549, and our, AREH’s and API’s telephone number is (914) 242-7700.
      Substantially all of our businesses and assets are held through AREH, in which we own a 99% limited partnership interest. For that reason, no separate disclosure information for AREH is provided, unless otherwise indicated.
      AREP Finance, a Delaware corporation, is a wholly-owned subsidiary of AREP. AREP Finance was incorporated on April 19, 2004 and was formed solely for the purpose of serving as a co-issuer of debt securities of AREP in order to facilitate offerings of the debt securities. Other than as a co-issuer of the notes, AREP Finance does not have any operations or assets and does not have any revenues. As a result, prospective holders of the notes should not expect AREP Finance to participate in servicing any obligations on the notes. AREP Finance’s principal business address is 100 South Bedford Road, Mt. Kisco, New York 10549 and its telephone number is (914) 242-7700.

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Structure Chart
      The following is a chart of our ownership and the structure of the entities through which we conduct our operations, giving effect to the Acquisitions.
(FLOWCHART)
 
(1)  Our partnership units consist of depositary units, representing limited partnership interests, and preferred units, representing preferred limited partnership interests. As of March 31, 2005, there were 46,098,284 depositary units outstanding and 10,800,397 preferred units outstanding. As consideration for the acquisition of the other managing membership interest in NEG Holding, of Panaco and of GB Holdings and Atlantic Holdings common stock, affiliates of Mr. Icahn will receive up to 16,068,966 depositary units. If all such units were issued, there would be 62,374,147 depositary units outstanding and 10,800,397 preferred units outstanding and Mr. Icahn would be the beneficial owner of 46,172,699 depositary units representing approximately 90.1% of the depositary units. The number of depositary units to be issued does not include up to an additional 206,897 depositary units which may be issued to affiliates of Mr. Icahn if Atlantic Holdings meets certain earnings targets during 2005 and 2006.
 
(2)  Substantially all of our marketable debt and equity securities and rental real estate properties are owned, directly or indirectly, by AREH.
 
(3)  We anticipate that AREH will contribute its 50.01% interest in NEG to its wholly-owned subsidiary, AREP Oil & Gas. NEG is a publicly held company, the stock of which currently trades on the OTC Bulletin Board. NEG owns a membership interest in NEG Holding. Upon completion of the Acquisitions, AREP Oil & Gas will, directly or indirectly, own the other membership interest in NEG Holding and 100% of the equity of TransTexas and Panaco.
 
(4)  AREH, through direct and indirect wholly-owned subsidiaries, is engaged in real estate investment, management and development, focused primarily on the acquisition, development, construction and sale

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of single-family homes, custom-built homes, multi-family homes and lots in subdivisions and planned communities.
 
(5)  AREH, through direct and indirect wholly-owned subsidiaries, owns Grand Harbor and Oak Harbor, waterfront communities located in Vero Beach, Florida.
 
(6)  AREH, through direct and indirect wholly-owned subsidiaries, owns a 381 acre resort community in Cape Cod, Massachusetts.
 
(7)  American Entertainment Properties Corp., through American Casino & Entertainment Properties LLC, or ACEP, and its indirect subsidiaries, owns three Las Vegas hotels and casinos.
 
(8)  AREP Sands owns approximately 36.3% of the outstanding common stock of GB Holdings, 41.9% of the outstanding common stock of Atlantic Coast Entertainment Holdings, Inc. and approximately $35.0 million principal amount of the Atlantic Holdings 3% notes due 2008, or the Atlantic Holdings Notes, or approximately 93.5% of the outstanding principal amount of the notes. Upon completion of the Acquisitions, AREP Sands will own approximately 77.5% of the outstanding GB Holdings common stock, approximately 58.3% of the outstanding Atlantic Holdings common stock and approximately $35.0 million principal amount of the Atlantic Holdings Notes. If all outstanding Atlantic Holdings notes were converted and warrants exercised, AREP Sands would own approximately 63.4% of Atlantic Holdings common stock, GB Holdings would own approximately 28.8% of the Atlantic Holdings common stock and the remaining shares would be owned by the public.
 
(9)  NEG and Gascon each owns a membership interest in NEG Holding. We have agreed to purchase from Gascon its membership interest in NEG Holding. Pursuant to the NEG Holding operating agreement, NEG is required to be paid guaranteed payments, calculated at an annual interest rate of 10.75% on the outstanding priority amount, which includes all outstanding debt owed to entities owned or controlled by Mr. Icahn, including the amount of the NEG Notes. As of March 31, 2005, the priority amount was $148.6 million. The NEG Holding operating agreement provides that the priority amount is required to be paid to NEG by November 6, 2006. After NEG is paid the guaranteed payments and the priority amount, Gascon is paid an amount equal to the guaranteed payments and the priority amount plus interest. After these distributions have been made, any additional distributions will be made in accordance with the ratio of NEG’s and Gascon’s respective capital accounts, as defined in the operating agreement.

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RISK FACTORS
      You should consider carefully each of the following risks and all other information contained in this prospectus before deciding to invest in the notes.
Risks Relating to the Exchange Offer
Holders who fail to exchange their private notes will continue to be subject to restrictions on transfer.
      If you do not exchange your private notes for new notes in the exchange offer, you will continue to be subject to the restrictions on transfer of your private notes described in the legend on your private notes. The restrictions on transfer of your private notes arise because we issued the private notes under exemptions from, or in transactions not subject to, the registration requirements of the Securities Act of 1933 and applicable state securities laws. In general, you may only offer or sell the private notes if they are registered under the Securities Act and applicable state securities laws, or are offered and sold under an exemption from these requirements. We do not plan to register the private notes under the Securities Act.
Broker-dealers or holders of notes may become subject to the registration and prospectus delivery requirements of the Securities Act.
      Any broker-dealer that:
  •  exchanges its private notes in the exchange offer for the purpose of participating in a distribution of the new notes, or
 
  •  resells new notes that were received by it for its own account in the exchange offer,
may be deemed to have received restricted securities and may be required to comply with the registration and prospectus delivery requirements of the Securities Act of 1933 in connection with any resale transaction by that broker-dealer. Any profit on the resale of the new notes and any commission or concessions received by a broker-dealer may be deemed to be underwriting compensation under the Securities Act. In addition to broker-dealers, any holder of notes that exchanges its private notes in the exchange offer for the purpose of participating in a distribution of the new notes may be deemed to have received restricted securities and may be required to comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction by that holder.
We cannot guarantee that there will be a trading market for the new notes.
      The new notes are a new issue of securities and currently there is no market for them. We do not intend to apply to have the new notes listed or quoted on any exchange or quotation system. Accordingly, we cannot assure you that a liquid market will develop for the new notes.
      The liquidity of any market for the new notes will depend on a variety of factors, including:
  •  the number of holders of the new notes;
 
  •  our performance; and
 
  •  the market for similar securities and the interest of securities dealers in making a market in the new notes.
      A liquid trading market may not develop for the new notes.
      Historically, the market for non-investment grade debt has been subject to disruptions that have caused substantial volatility in the prices of securities similar to the new notes. The market, if any, for the new notes may experience similar disruptions that may adversely affect the prices at which you may sell your new notes. If an active trading market does not develop or is not maintained, the market price and liquidity of the new notes may be adversely affected.
      To the extent private notes are tendered and accepted in the exchange offer, the trading market, if any, for the private notes that are not so tendered would be adversely affected.

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Risks Relating to Our Structure and Indebtedness
We and AREH are holding companies and will depend on the businesses of our subsidiaries to satisfy our obligations under the notes.
      We and AREH are holding companies. In addition to cash and cash equivalents, U.S. government and agency obligations, marketable equity and debt securities and rental real estate properties, our assets consist primarily of investments in our subsidiaries. Moreover, if we make significant investments in operating businesses, it is likely that we will reduce the liquid assets at AREP and AREH in order to fund those investments and their ongoing operations. Consequently, our cash flow and our ability to meet our debt service obligations likely will depend on the cash flow of our subsidiaries and the payment of funds to us by our subsidiaries in the form of loans, dividends, distributions or otherwise. If we invest our cash, we may become dependent on our subsidiaries to provide cash to us to service our debt.
      The operating results of our subsidiaries may not be sufficient to make distributions to us. In addition, our subsidiaries are not obligated to make funds available to us for payment on the notes or otherwise, and distributions and intercompany transfers from our subsidiaries to us may be restricted by applicable law or covenants contained in debt agreements and other agreements to which these subsidiaries may be subject or enter into in the future. The terms of any borrowings of our subsidiaries or other entities in which we own equity may restrict dividends, distributions or loans to us. For example, the notes issued by ACEP, an indirect wholly-owned subsidiary of AREH, contain restrictions on dividends and distributions and loans to us, as well as other transactions with us. ACEP also has a credit agreement which contains financial covenants that have the effect of restricting dividends or distributions. The operating subsidiary of NEG Holding, of which we have agreed to acquire a membership interest, has a credit agreement which contains financial covenants that have the effect of restricting dividends or distributions. These likely will preclude our receiving payments from the operations of our hotel and casino and certain of our oil and gas properties. To the degree any distributions and transfers are impaired or prohibited, our ability to make payments on the notes will be limited.
We, AREH or our subsidiaries may be able to incur substantially more debt.
      We, AREH or our subsidiaries may be able to incur substantial additional indebtedness in the future. The terms of the indenture do not prohibit us or our subsidiaries from doing so. We and AREH may incur additional indebtedness if we comply with certain financial tests contained in the indenture. As of March 31, 2005, based upon these tests, we and AREH could have incurred up to approximately $1.5 billion of additional indebtedness ($1.4 billion on a pro forma basis after giving effect to the Acquisitions). Our subsidiaries other than AREH are not subject to any of the covenants contained in the indenture, including the covenant restricting debt incurrence. If new debt is added to our, AREH’s and our subsidiaries’ current debt levels, the related risks that we, AREH and they now face could intensify. In addition, certain important events, such as leveraged recapitalizations that would increase the level of our indebtedness, would not constitute a “Change of Control” under the indenture.
The notes will be effectively subordinated to any secured indebtedness, and all the indebtedness and liabilities of our subsidiaries other than AREH.
      The notes will be effectively subordinated to our and AREH’s existing and future secured indebtedness to the extent of the collateral securing such indebtedness. We and AREH may be able to incur substantial additional secured indebtedness in the future. The terms of the indenture permit us and AREH to do so. The notes will be effectively subordinated to our and AREH’s existing and future secured indebtedness to the extent of the collateral securing such indebtedness. The notes will also be effectively subordinated to all the indebtedness and liabilities, including trade payables, of all of our subsidiaries, other than AREH. In the event of a bankruptcy, liquidation or reorganization of any of our subsidiaries, other than AREH, holders of their indebtedness and their trade creditors will generally be entitled to payment of their claims from the assets of those subsidiaries before any assets are made available for distribution to us. Assuming we had completed the Acquisitions on March 31, 2005, the notes and the guarantee would have been effectively subordinated to an aggregate of $295.2 million of AREH’s secured debt and our subsidiaries’ debt, excluding trade payables.

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Our subsidiaries, other than AREH, will not be subject to any of the covenants in the indenture for the notes and only AREH will guarantee the notes. We may not be able to rely on the cash flow or assets of our subsidiaries to pay our indebtedness.
      Our subsidiaries, other than AREH, will not be subject to the covenants under the indenture for the notes. We may form additional subsidiaries in the future which will not be subject to the covenants under the indenture for the notes. Of our existing and future subsidiaries, only AREH is required to guarantee the notes. Our existing and future non-guarantor subsidiaries may enter into financing arrangements that limit their ability to make dividends, distributions, loans or other payments to fund payments in respect of the notes. Accordingly, we may not be able to rely on the cash flow or assets of our subsidiaries to pay the notes.
Risks Relating to the Notes
Our failure to comply with the covenants contained under one of our debt instruments or the indenture governing the notes, including our failure as a result of events beyond our control, could result in an event of default which would materially and adversely affect our financial condition.
      If there were an event of default under one of our debt instruments, the holders of the defaulted debt could cause all outstanding amounts of that debt to be due and payable immediately. In addition, any event of default or declaration of acceleration under one debt instrument could result in an event of default under one or more of our other debt instruments, including the notes. It is possible that, if the defaulted debt is accelerated, our assets and cash flow may not be sufficient to fully repay borrowings under our outstanding debt instruments and we cannot assure you that we would be able to refinance or restructure the payments on those debt securities.
To service our indebtedness, we will require a significant amount of cash. Our ability to maintain our current cash position or generate cash depends on many factors beyond our control.
      Our ability to make payments on and to refinance our indebtedness, including the notes, and to fund operations will depend on existing cash balances and our ability to generate cash in the future. This, to a certain extent, is subject to general economic, financial, competitive, regulatory and other factors that are beyond our control.
      The businesses or assets we acquire may not generate sufficient cash to service our debt, including the notes. In addition, we may not generate sufficient cash flow from operations or investments and future borrowings may not be available to us in an amount sufficient to enable us to service our indebtedness, including the notes, or to fund our other liquidity needs. We may need to refinance all or a portion of our indebtedness, including the notes, on or before maturity. We cannot assure you that we will be able to refinance any of our indebtedness, including the notes, on commercially reasonable terms or at all.
The indenture does not restrict our ability to change our lines of business or invest the proceeds of asset sales and allows for the sale of all or substantially all of our and AREH’s assets without the notes being assumed by the acquirers.
      The indenture does not restrict in any way the businesses in which we may engage and if we were to change our current lines of business, in whole or in part, you would not be entitled to accelerated repayment of the notes. We also are not required to offer to purchase notes with the proceeds from asset sales, including in the event of the sale of all or substantially all of our assets or AREH’s assets, and we may reinvest the proceeds without the approval of noteholders. In addition, we and AREH may sell all or substantially all of our and its assets without the notes being assumed by the acquirers.
We may not have sufficient funds necessary to finance the change of control offer required by the indenture.
      Upon the occurrence of certain specific kinds of change of control events, we will be required to offer to repurchase all outstanding notes at 101% of their principal amount plus accrued and unpaid interest and

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liquidated damages, if any, to the date of repurchase. Mr. Icahn, through affiliates, currently owns 100% of API and approximately 86.5% of our outstanding depositary units and preferred units, and will own approximately 90.1% of our depositary units if all of the Acquisitions are completed (assuming no reduction in the number of Depositary Units issued in connection with the acquisitions of the NEG Holding membership interest and Panaco and assuming no additional Depositary Units are issued in connection with the acquisition of GB Holdings common stock and Atlantic Holdings common stock). If he were to sell or otherwise transfer some or all of his interests in us to unrelated parties, a change of control could be deemed to have occurred under the terms of the indenture governing the notes. However, it is possible that we will not have sufficient funds at the time of the change of control to make the required repurchase of notes.
Federal and state statutes allow courts, under specific circumstances, to void guarantees and require noteholders to return payments received from the guarantor.
      Under the federal bankruptcy law and comparable provisions of state fraudulent transfer laws, a guarantee could be voided, or claims in respect of a guarantee could be subordinated to all other debts of that guarantor if, among other things, the guarantor, at the time it incurred the indebtedness evidenced by its guarantee:
  •  received less than reasonably equivalent value or fair consideration for the incurrence of such guarantee; and
 
  •  was insolvent or rendered insolvent by reason of such incurrence; or
 
  •  was engaged in a business or transaction for which the guarantor’s remaining assets constituted unreasonably small capital; or
 
  •  intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they mature.
      In addition, any payment by that guarantor pursuant to its guarantee could be voided and required to be returned to the guarantor, or to a fund for the benefit of the creditors of the guarantor.
      The measures of insolvency for purposes of these fraudulent transfer laws will vary depending upon the law applied in any proceeding to determine whether a fraudulent transfer has occurred. Generally, however, a guarantor would be considered insolvent if:
  •  the sum of its debts, including contingent liabilities, was greater than the fair saleable value of all of its assets; or
 
  •  the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or
 
  •  it could not pay its debts as they become due.
      On the basis of historical financial information, recent operating history and other factors, we believe that AREH, after giving effect to its guarantee of these notes, will not be insolvent, will not have unreasonably small capital for the businesses in which it is engaged and will not have incurred debts beyond its ability to pay such debts as they mature. We cannot assure you, however, as to what standard a court would apply in making these determinations or that a court would agree with our conclusions in this regard.
As a noteholder you may be required to comply with licensing, qualification or other requirements under gaming laws and could be required to dispose of the notes.
      Currently, we and AREH indirectly own the equity of subsidiaries that hold the licenses for three hotels and casinos in Nevada. We and AREH indirectly own Stratosphere Corporation, which owns Stratosphere Gaming Corp. Stratosphere Gaming holds the gaming license for the Stratosphere. We and AREH also indirectly own the equity of subsidiaries that hold the licenses for the two Arizona Charlie’s hotels and casinos. We and AREH also indirectly own approximately 41.9% of the outstanding common stock of Atlantic

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Holdings which indirectly owns The Sands Hotel and Casino. Following the completion of the Acquisitions, we will indirectly own approximately 58.3% of such common stock.
      We may be required to disclose the identities of the holders of the notes to the New Jersey and Nevada gaming authorities upon request. The New Jersey Casino Control Act, or NJCCA, imposes substantial restrictions on the ownership of our securities and our subsidiaries. A holder of the notes may be required to meet the qualification provisions of the NJCCA relating to financial sources and/or security holders. The indenture governing the notes provide that if the New Jersey Casino Control Commission, or New Jersey Commission, requires a holder of the notes (whether the record or beneficial owner) to qualify under the NJCCA and the holder does not so qualify, then the holder must dispose of his interest in the notes within 30 days after receipt by us of notice of the finding that the holder does not so qualify, or we may redeem the notes at the lower of the outstanding principal amount or the notes’ value calculated as if the investment had been made on the date of disqualification of the holder (or such lesser amount as may be required by the New Jersey Commission). If a holder is found unqualified by the New Jersey Commission, it is unlawful for the holder:
  •  to exercise, directly or through any trustee or nominee, any right conferred by such securities, or
 
  •  to receive any dividends or interest upon such securities or any remuneration, in any form, from its affiliated casino licensee for services rendered or otherwise.
      The Nevada Gaming Commission may, in its discretion, require a holder of the notes to file an application, be investigated and be found suitable to hold the notes. In addition, the Nevada Gaming Commission may, in its discretion, require the holder of any debt security of a company registered by the Nevada Gaming Commission as a publicly-traded corporation to file an application, be investigated and be found suitable to own such debt security.
      If a record or beneficial holder of a note is required by the Nevada Gaming Commission to be found suitable, such owner will be required to apply for a finding of suitability within 30 days after request of such gaming authority or within such earlier time prescribed by such gaming authority. The applicant for a finding of suitability must pay all costs of the application and investigation for such finding of suitability. If the Nevada Gaming Commission determines that a person is unsuitable to own such security, then, pursuant to the Nevada Gaming Control Act, we can be sanctioned, including the loss of our approvals, if, without the prior approval of the Nevada Gaming Commission, we:
  •  pay to the unsuitable person any dividend, interest, or any distribution whatsoever;
 
  •  recognize any voting right of the unsuitable person with respect to such securities;
 
  •  pay the unsuitable person remuneration in any form; or
 
  •  make any payment to the unsuitable person by way of principal, redemption, conversion, exchange, liquidation or similar transaction.
      Each holder of the notes will be deemed to have agreed, to the extent permitted by law, that if the Nevada gaming authorities determine that a holder or beneficial owner of the notes must be found suitable, and if that holder or beneficial owner either refuses to file an application or is found unsuitable, that holder shall, upon our request, dispose of its notes within 30 days after receipt of our request, or earlier as may be ordered by the Nevada gaming authorities. We will also have the right to call for the redemption of notes of any holder at any time to prevent the loss or material impairment of a gaming license or an application for a gaming license at a redemption price equal to:
  •  the lesser of the cost paid by the holder or the fair market value of the notes, in each case, plus accrued and unpaid interest and liquidated damages, if any, to the earlier of the date of redemption, or earlier as may be required by the Nevada gaming authorities or the finding of unsuitability by the Nevada gaming authorities; or
 
  •  such other lesser amount as may be ordered by the Nevada gaming authorities.

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      We will notify the trustee under the indenture in writing of any redemption as soon as practicable. We will not be responsible for any costs or expenses you may incur in connection with your application for a license, qualification or a finding of suitability, or your compliance with any other requirement of a gaming authority. The indenture also provides that as soon as a gaming authority requires you to sell your notes, you will, to the extent required by applicable gaming laws, have no further right:
  •  to exercise, directly or indirectly, any right conferred by the notes or the indenture; or
 
  •  to receive from us any interest, dividends or any other distributions or payments, or any remuneration in any form, relating to the notes, except the redemption price we refer to above.
Our general partner and its control person could exercise their influence over us to your detriment.
      Mr. Icahn, through affiliates, currently owns 100% of API, our general partner, and approximately 86.5% of our outstanding Depositary Units and preferred units, and will own approximately 90.0% of our Depositary Units if all of the Acquisitions are completed (assuming no reduction in the number of Depositary Units issued in connection with the acquisitions of the NEG Holding membership interest and Panaco and assuming no additional Depositary Units are issued in connection with the acquisition of GB Holdings and Atlantic Holdings common stock) and, as a result, has and will have the ability to influence many aspects of our operations and affairs. API also is the general partner of AREH.
      We have agreed to acquire the other membership interest in NEG Holding, the equity of Panaco, and the common stock of GB Holdings and of Atlantic Holdings owned by affiliates of Mr. Icahn. Upon completion of these acquisitions, all of Mr. Icahn’s and his affiliates’ interests in each of NEG Holding, TransTexas, Panaco, GB Holdings and Atlantic Holdings will be owned through AREP.
      We may invest in entities in which Mr. Icahn also invests or purchase investments from him or his affiliates. Although API has never received fees in connection with our investments, our partnership agreement allows for the payment of these fees. Mr. Icahn may pursue other business opportunities in which we compete and there is no requirement that any additional business opportunities be presented to us.
      The interests of Mr. Icahn, including his interests in entities in which he and we have invested or may invest in the future, may differ from your interests as a noteholder and, as such, he may take actions that may not be in your interest. For example, if we encounter financial difficulties or are unable to pay our debts as they mature, Mr. Icahn’s interests might conflict with your interests as a noteholder.
      In addition, if Mr. Icahn were to sell, or otherwise transfer, some or all of his interests in us to an unrelated party or group, a change of control could be deemed to have occurred under the terms of the indenture governing the notes which would require us to offer to repurchase all outstanding notes at 101% of their principal amount plus accrued and unpaid interest and liquidated damages, if any, to the date of repurchase. However, it is possible that we will not have sufficient funds at the time of the change of control to make the required repurchase of notes.
Certain of our management are committed to the management of other businesses.
      Certain of the individuals who conduct the affairs of API, including our chairman, Mr. Icahn, and our chief executive officer, Keith A. Meister, are, and will in the future be, committed to the management of other businesses owned or controlled by Mr. Icahn and his affiliates. Accordingly, these individuals will not be devoting all of their professional time to the management of us, and conflicts may arise between our interests and the other entities or business activities in which such individuals are involved. Conflicts of interest may arise in the future as such affiliates and we may compete for the same assets, purchasers and sellers of assets or financings.

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Since we are a limited partnership, you may not be able to pursue legal claims against us in U.S. federal courts.
      We are a limited partnership organized under the laws of the state of Delaware. Under the rules of federal civil procedure, you may not be able to sue us in federal court on claims other than those based solely on federal law, because of lack of complete diversity. Case law applying diversity jurisdiction deems us to have the citizenship of each of our limited partners. Because we are a publicly traded limited partnership, it may not be possible for you to sue us in a federal court because we have citizenship in all 50 U.S. states and operations in many states. Accordingly, you will be limited to bringing any claims in state court. Furthermore, AREP Finance, our corporate co-issuer for the notes, has only nominal assets and no operations. While you may be able to sue the corporate co-issuer in federal court, you are not likely to be able to realize on any judgment rendered against it.
We may be subject to the pension liabilities of our affiliates.
      Mr. Icahn, through certain affiliates, currently owns 100% of API and approximately 86.5% of our outstanding Depositary Units and preferred units. Applicable pension and tax laws make each member of a “controlled group” of entities, generally defined as entities in which there is at least an 80% common ownership interest, jointly and severally liable for certain pension plan obligations of any member of the controlled group. These pension obligations include ongoing contributions to fund the plan, as well as liability for any unfunded liabilities that may exist at the time the plan is terminated. In addition, the failure to pay these pension obligations when due may result in the creation of liens in favor of the pension plan or the Pension Benefit Guaranty Corporation, or the PBGC, against the assets of each member of the controlled group.
      As a result of the more than 80% ownership interest in us by Mr. Icahn’s affiliates, we and our subsidiaries, are subject to the pension liabilities of all entities in which Mr. Icahn has a direct or indirect ownership interest of at least 80%. One such entity, ACF Industries LLC, is the sponsor of several pension plans which are underfunded by a total of approximately $23.7 million on an ongoing actuarial basis and $175.4 million if those plans were terminated, as most recently reported by the plans’ actuaries. These liabilities could increase or decrease, depending on a number of factors, including future changes in promised benefits, investment returns, and the assumptions used to calculate the liability. As members of the controlled group, we would be liable for any failure of ACF to make ongoing pension contributions or to pay the unfunded liabilities upon a termination of the ACF pension plans. In addition, other entities now or in the future within the controlled group that includes us may have pension plan obligations that are, or may become, underfunded and we would be liable for any failure of such entities to make ongoing pension contributions or to pay the unfunded liabilities upon a termination of such plans.
      The current underfunded status of the ACF pension plans requires ACF to notify the PBGC of certain “reportable events,” such as if we cease to be a member of the ACF controlled group, or if we make certain extraordinary dividends or stock redemptions. The obligation to report could cause us to seek to delay or reconsider the occurrence of such reportable events.
      Starfire Holding Corporation, which is 100% owned by Mr. Icahn, has undertaken to indemnify us and our subsidiaries from losses resulting from any imposition of pension funding or termination liabilities that may be imposed on us and our subsidiaries or our assets as a result of being a member of the Icahn controlled group. The Starfire indemnity provides, among other things, that so long as such contingent liabilities exist and could be imposed on us, Starfire will not make any distributions to its stockholders that would reduce its net worth to below $250.0 million. Nonetheless, Starfire may not be able to fund its indemnification obligations to us.
We are subject to the risk of possibly becoming an investment company.
      Because we are a holding company and a significant portion of our assets consists of investments in companies in which we own less than a 50% interest, we run the risk of inadvertently becoming an investment company that is required to register under the Investment Company Act of 1940. Registered investment

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companies are subject to extensive, restrictive and potentially adverse regulation relating to, among other things, operating methods, management, capital structure, dividends and transactions with affiliates. Registered investment companies are not permitted to operate their business in the manner in which we operate our business, nor are registered investment companies permitted to have many of the relationships that we have with our affiliated companies.
      To avoid regulation under the Investment Company Act, we monitor the value of our investments and structure transactions with an eye toward the Investment Company Act. As a result, we may structure transactions in a less advantageous manner than if we did not have Investment Company Act concerns, or we may avoid otherwise economically desirable transactions due to those concerns. In addition, events beyond our control, including significant appreciation or depreciation in the market value of certain of our publicly traded holdings, could result in our inadvertently becoming an investment company.
      If it were established that we were an investment company, there would be a risk, among other material adverse consequences, that we could become subject to monetary penalties or injunctive relief, or both, in an action brought by the SEC, that we would be unable to enforce contracts with third parties or that third parties could seek to obtain rescission of transactions with us undertaken during the period it was established that we were an unregistered investment company.
We may become taxable as a corporation.
      We operate as a partnership for federal income tax purposes. This allows us to pass through our income and deductions to our partners. We believe that we have been and are properly treated as a partnership for federal income tax purposes. However, the Internal Revenue Service, or IRS, could challenge our partnership status and we could fail to qualify as a partnership for past years as well as future years. Qualification as a partnership involves the application of highly technical and complex provisions of the Internal Revenue Code of 1986, as amended. For example, a publicly traded partnership is generally taxable as a corporation unless 90% or more of its gross income is “qualifying” income, which includes interest, dividends, real property rents, gains from the sale or other disposition of real property, gain from the sale or other disposition of capital assets held for the production of interest or dividends, and certain other items. We believe that in all prior years of our existence at least 90% of our gross income was qualifying income and we intend to structure our business in a manner such that at least 90% of our gross income will constitute qualifying income this year and in the future. However, there can be no assurance that such structuring will be effective in all events to avoid the receipt of more than 10% of non-qualifying income. If less than 90% of our gross income constitutes qualifying income, we may be subject to corporate tax on our net income at regular corporate tax rates. Further, if less than 90% of our gross income constituted qualifying income for past years, we may be subject to corporate level tax plus interest and possibly penalties. In addition, if we register under the Investment Company Act of 1940, it is likely that we would be treated as a corporation for U.S. federal income tax purposes and subject to corporate tax on our net income at regular corporate tax rates. The cost of paying federal and possibly state income tax, either for past years or going forward, would be a significant liability and would reduce our funds available to make interest and principal payments on the notes.

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Risks Relating to Our Business
Real Estate Operations
Our investment in property development may be more costly than anticipated.
      We have invested and expect to continue to invest in unentitled land, undeveloped land and distressed development properties. These properties involve more risk than properties on which development has been completed. Unentitled land may not be approved for development. Undeveloped land and distressed development properties do not generate any operating revenue, while costs are incurred to develop the properties. In addition, undeveloped land and development properties incur expenditures prior to completion, including property taxes and development costs. Also, construction may not be completed within budget or as scheduled and projected rental levels or sales prices may not be achieved and other unpredictable contingencies beyond our control could occur. We will not be able to recoup any of such costs until such time as these properties, or parcels thereof, are either disposed of or developed into income-producing assets.
Competition for acquisitions could adversely affect us and new acquisitions may fail to perform as expected.
      We seek to acquire investments that are undervalued. Acquisition opportunities in the real estate market for value-added investors have become competitive to source and the increased competition may negatively impact the spreads and the ability to find quality assets that provide returns that we seek. These investments may not be readily financeable and may not generate immediate positive cash flow for us. There can be no assurance that any asset we acquire, whether in the real estate sector or otherwise, will increase in value or generate positive cash flow.
We may not be able to sell our rental properties, which would reduce cash available for other purposes.
      We are currently marketing for sale our rental real estate portfolio. As of March 31, 2005, we owned 67 rental real estate properties with a book value of approximately $164.8 million, individually encumbered by mortgage debt which aggregated approximately $80.2 million. As of March 31, 2005, we had entered into conditional sales contracts or letters of intent for 11 rental real estate properties. Selling prices for the properties covered by the contracts or letters of intent would total approximately $45.5 million. These properties are encumbered by mortgage debt of approximately $25.3 million. Generally, these contracts and letters of intent may be terminated by the buyer with little or no penalty. We may not be successful in obtaining purchase offers for our remaining properties at acceptable prices and sales may not be consummated. Many of our properties are net-leased to single corporate tenants, and it may be difficult to sell those properties that existing tenants decline to re-let. Our attempt to market the real estate portfolio may not be successful. Even if our efforts are successful, we cannot be certain that the proceeds from the sales can be used to acquire businesses and investments at prices or at projected returns which are deemed favorable. From April 1, through May 31, we sold five of these rental real estate properties for approximately $3.1 million. These properties were unencumbered by mortgage debt.
We face potential adverse effects from tenant bankruptcies or insolvencies.
      The bankruptcy or insolvency of our tenants may adversely affect the income produced by our properties. If a tenant defaults, we may experience delays and incur substantial costs in enforcing our rights as landlord. If a tenant files for bankruptcy, we cannot evict the tenant solely because of such bankruptcy. A court, however, may authorize a tenant to reject or terminate its lease with us.
We may be subject to environmental liability as an owner or operator of development and rental real estate.
      Under various federal, state and local laws, ordinances and regulations, an owner or operator of real property may become liable for the costs of removal or remediation of certain hazardous substances, pollutants and contaminants released on, under, in or from its property. These laws often impose liability without regard

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to whether the owner or operator knew of, or was responsible for, the release of such substances. To the extent any such substances are found in or on any property invested in by us, we could be exposed to liability and be required to incur substantial remediation costs. The presence of such substances or the failure to undertake proper remediation may adversely affect the ability to finance, refinance or dispose of such property. We generally conduct a Phase I environmental site assessment on properties in which we are considering investing. A Phase I environmental site assessment involves record review, visual site assessment and personnel interviews, but does not typically include invasive testing procedures such as air, soil or groundwater sampling or other tests performed as part of a Phase II environmental site assessment. Accordingly, there can be no assurance that these assessments will disclose all potential liabilities or that future property uses or conditions or changes in applicable environmental laws and regulations or activities at nearby properties will not result in the creation of environmental liabilities with respect to a property.
Hotel and Casino Operations
The gaming industry is highly regulated. The gaming authorities and state and municipal licensing authorities have significant control over our operations.
      Our properties currently conduct licensed gaming operations in Nevada. In addition, we have entered into an agreement to acquire shares of GB Holdings and shares of Atlantic Holdings, that together with the shares we currently own, will result in our owning approximately 77.5% of the common stock of GB Holdings and approximately 58.3% of the stock of Atlantic Holdings. Atlantic Holdings through its wholly-owned subsidiary owns and operates The Sands Hotel and Casino. Various regulatory authorities, including the Nevada State Gaming Control Board, Nevada Gaming Commission and the New Jersey Casino Control Commission, require our properties and The Sands Hotel and Casino to hold various licenses and registrations, findings of suitability, permits and approvals to engage in gaming operations and to meet requirements of suitability. These gaming authorities also control approval of ownership interests in gaming operations. These gaming authorities may deny, limit, condition, suspend or revoke our gaming licenses, registrations, findings of suitability or the approval of any of our ownership interests in any of the licensed gaming operations conducted in Nevada and New Jersey, any of which could have a significant adverse effect on our business, financial condition and results of operations, for any cause they may deem reasonable. If we violate gaming laws or regulations that are applicable to us, we may have to pay substantial fines or forfeit assets. If, in the future, we operate or have an ownership interest in casino gaming facilities located outside of Nevada or New Jersey, we may also be subject to the gaming laws and regulations of those other jurisdictions.
      The sale of alcoholic beverages at our Nevada properties is subject to licensing and regulation by the City of Las Vegas and Clark County, Nevada. The City of Las Vegas and Clark County have full power to limit, condition, suspend or revoke any such license, and any such disciplinary action may, and revocation would, reduce the number of visitors to our Nevada casinos to the extent the availability of alcoholic beverages is important to them. If our alcohol licenses become in any way impaired, it would reduce the number of visitors. Any reduction in our number of visitors will reduce our revenue and cash flow.
Rising operating costs for our gaming and entertainment properties could have a negative impact on our profitability.
      The operating expenses associated with our gaming and entertainment properties could increase due to some of the following factors:
  •  potential changes in the tax or regulatory environment which impose additional restrictions or increase operating costs;
 
  •  our properties use significant amounts of electricity, natural gas and other forms of energy, and energy price increases may reduce our working capital;
 
  •  our Nevada properties use significant amounts of water and a water shortage may adversely affect our operations;

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  •  an increase in the cost of health care benefits for our employees could have a negative impact on our profitability;
 
  •  some of our employees are covered by collective bargaining agreements and we may incur higher costs or work slow-downs or stoppages due to union activities;
 
  •  our reliance on slot machine revenues and the concentration of manufacturing of slot machines in certain companies could impose additional costs on us; and
 
  •  our insurance coverage may not be adequate to cover all possible losses and our insurance costs may increase.
We face substantial competition in the hotel and casino industry.
      The hotel and casino industry in general, and the markets in which we compete in particular, are highly competitive.
  •  we compete with many world class destination resorts with greater name recognition, different attractions, amenities and entertainment options;
 
  •  we compete with the continued growth of gaming on Native American tribal lands;
 
  •  the existence of legalized gambling in other jurisdictions may reduce the number of visitors to our properties;
 
  •  certain states have legalized, and others may legalize, casino gaming in specific venues, including race tracks and/or in specific areas, including metropolitan areas from which we traditionally attract customers; and
 
  •  our properties also compete and will in the future compete with all forms of legalized gambling.
      Many of our competitors have greater financial, selling and marketing, technical and other resources than we do. We may not be able to compete effectively with our competitors and we may lose market share, which could reduce our revenue and cash flow.
Economic downturns, terrorism and the uncertainty of war, as well as other factors affecting discretionary consumer spending, could reduce the number of our visitors or the amount of money visitors spend at our casinos.
      The strength and profitability of our business depends on consumer demand for hotel-casino resorts and gaming in general and for the type of amenities we offer. Changes in consumer preferences or discretionary consumer spending could harm our business.
      During periods of economic contraction, our revenues may decrease while some of our costs remain fixed, resulting in decreased earnings, because the gaming and other leisure activities we offer at our properties are discretionary expenditures, and participation in these activities may decline during economic downturns because consumers have less disposable income. Even an uncertain economic outlook may adversely affect consumer spending in our gaming operations and related facilities, as consumers spend less in anticipation of a potential economic downturn. Additionally, rising gas prices could deter non-local visitors from traveling to our properties.
      The terrorist attacks which occurred on September 11, 2001, the potential for future terrorist attacks and wars in Afghanistan and Iraq have had a negative impact on travel and leisure expenditures, including lodging, gaming and tourism. Leisure and business travel, especially travel by air, remain particularly susceptible to global geopolitical events. Many of the customers of our properties travel by air, and the cost and availability of air service can affect our business. Furthermore, insurance coverage against loss or business interruption resulting from war and some forms of terrorism may be unavailable or not available on terms that we consider reasonable. We cannot predict the extent to which war, future security alerts or additional terrorist attacks may interfere with our operations.

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Our hotels and casinos may need to increase capital expenditures to compete effectively.
      Capital expenditures, such as room refurbishments, amenity upgrades and new gaming equipment, may be necessary from time to time to preserve the competitiveness of our hotels and casinos. The gaming industry market is very competitive and is expected to become more competitive in the future. If cash from operations is insufficient to provide for needed levels of capital expenditures, the competitive position of our hotels and casinos could deteriorate if our hotels and casinos are unable to raise funds for such purposes.
Increased state taxation of gaming and hospitality revenues could adversely affect our hotel and casinos’ results of operations.
      The casino industry represents a significant source of tax revenues to the various jurisdictions in which casinos operate. Gaming companies are currently subject to significant state and local taxes and fees in addition to normal federal and state corporate income taxes. For example, casinos in Atlantic City pay for licenses as well as special taxes to the city and state, including taxes on annual gaming revenues, an annual investment alternative tax on annual gaming revenues, on casino complimentaries and on casino service industry multi-casino progressive slot machine revenue, a daily fee on each hotel room in a casino hotel facility that is occupied by a guest for consideration or as a complimentary item and a hotel parking charge.
      Future changes in state taxation of casino gaming companies cannot be predicted and any such changes could adversely affect the operating results of our hotels and casino.
GB Holdings may be unable to pay the interest or principal on its 11% notes due 2005 at maturity.
      GB Holdings’ ability to pay (1) interest on its notes is dependent upon it receiving payments from Atlantic Holdings, which payments are subject to a number of conditions, including that payments by Atlantic Holdings may be made only in respect of interest due on the Atlantic Holdings Notes prior to the maturity date of the GB Holdings notes and that, at the time of any payment and after giving effect to it, no event of default exists and no event that could result in an event of default has occurred or is incipient under the indenture for the Atlantic Holdings Notes and (2) the interest and principal amount of the GB Holdings Notes at maturity in September 2005 will depend upon its ability to refinance such notes on favorable terms or at all or to derive sufficient funds from the sale of its Atlantic Holdings common stock or otherwise. If GB Holdings does not pay its notes at maturity, it could result in, among other things, GB Holdings seeking bankruptcy protection.
The Sands Hotel and Casino’s operating results are subject to seasonality.
      The Sands Hotel and Casino’s quarterly operating results are highly volatile and subject to unpredictable fluctuations. The Sands historically experienced greater revenues in the summer. Future results may be more or less seasonal than historical results. The Sands Hotel and Casino’s operating results for any given quarter may not meet expectations or conform to the operating results of The Sands Hotel and Casino’s local, regional or national competitors. Conversely, favorable operating results in any given quarter may be followed by an unexpected downturn in subsequent quarters.
The Sands is exposed to certain risks related to the creditworthiness of its patrons.
      Historically, The Sands Hotel and Casino has extended credit on a discretionary basis to certain qualified patrons. For the year ended December 31, 2004, gaming credit extended to The Sands Hotel and Casino’s table game patrons accounted for approximately 21.8% of overall table game wagering, and table game wagering accounted for approximately 12.1% of overall casino wagering during the period. At December 31, 2004, gaming receivables amounted to $7.8 million before an allowance for uncollectible gaming receivables of $3.5 million. There can be no assurance that defaults in the repayment of credit by patrons of The Sands Hotel and Casino would not have a material adverse effect on the results of operations of The Sands Hotel and Casino.

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Oil and Gas
We face substantial risks in the oil and gas industry.
      The exploration for and production of oil and gas involves numerous risks. The cost of drilling, completing and operating wells for oil or gas is often uncertain, and a number of factors can delay or prevent drilling operations or production, including:
  •  unexpected drilling conditions;
 
  •  pressure or irregularities in formation;
 
  •  equipment failures or repairs;
 
  •  fires or other accidents;
 
  •  adverse weather conditions;
 
  •  pipeline ruptures or spills; and
 
  •  shortages or delays in the availability of drilling rigs and the delivery of equipment.
The oil and gas industry is subject to environmental regulation by state and federal agencies.
      Our existing operations and the operations that we expect to acquire are affected by extensive regulation through various federal, state and local laws and regulations relating to the exploration for and development, production, gathering and marketing of oil and gas. Matters subject to regulation include discharge permits for drilling operations, drilling and abandonment bonds or other financial responsibility requirements, reports concerning operations, the spacing of wells, unitization and pooling of properties, and taxation. From time to time, regulatory agencies have imposed price controls and limitations on production by restricting the rate of flow of oil and gas wells below actual production capacity in order to conserve supplies of oil and gas.
      Our operations are also subject to numerous environmental laws, including but not limited to, those governing management of waste, protection of water, air quality, the discharge of materials into the environment, and preservation of natural resources. Non-compliance with environmental laws and the discharge of oil, natural gas, or other materials into the air, soil or water may give rise to liabilities to the government and third parties, including civil and criminal penalties, and may require us to incur costs to remedy the discharge. Oil and gas may be discharged in many ways, including from a well or drilling equipment at a drill site, leakage from pipelines or other gathering and transportation facilities, leakage from storage tanks, and sudden discharges from oil and gas wells or explosion at processing plants. Hydrocarbons tend to degrade slowly in soil and water, which makes remediation costly, and discharged hydrocarbons may migrate through soil and water supplies or adjoining property, giving rise to additional liabilities. Laws and regulations protecting the environment have become more stringent in recent years, and may in certain circumstances impose retroactive, strict, and joint and several liabilities rendering entities liable for environmental damage without regard to negligence or fault. In the past, we have agreed to indemnify sellers of producing properties against certain liabilities for environmental claims associated with those properties. We cannot assure you that new laws or regulations, or modifications of or new interpretations of existing laws and regulations, will not substantially increase the cost of compliance or otherwise adversely affect our oil and gas operations and financial condition or that material indemnity claims will not arise with respect to properties that we acquire. While we do not anticipate incurring material costs in connection with environmental compliance and remediation, we cannot guarantee that material costs will not be incurred.
We may experience difficulty finding and acquiring additional reserves and be unable to compensate for the depletion of our proved reserves.
      Our future success and growth depends upon the ability to find or acquire additional oil and gas reserves that are economically recoverable. Except to the extent that we conduct successful exploration or development activities or acquire properties containing proved reserves, our proved reserves will generally decline as they are produced. The decline rate varies depending upon reservoir characteristics and other factors. Our future oil

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and gas reserves and production, and, therefore, cash flow and income are highly dependent upon the level of success in exploiting our current reserves and acquiring or finding additional reserves. The business of exploring for, developing or acquiring reserves is capital intensive. To the extent cash flow from operations is reduced and external sources of capital become limited or unavailable, our ability to make the necessary capital investments to maintain or expand this asset base of oil and gas reserves could be impaired. Development projects and acquisition activities may not result in additional reserves. We may not have success drilling productive wells at economic returns sufficient to replace our current and future production. We may acquire reserves which contain undetected problems or issues that did not initially appear to be significant to us.
      Reservoir engineering is a subjective process of estimating the volumes of underground accumulations of oil and gas which cannot be measured precisely. The accuracy of any reserve estimates is a function of the quality of available data and of engineering and geological interpretation and judgment. Reserve estimates prepared by other engineers might differ from the estimates contained herein. Results of drilling, testing, and production subsequent to the date of the estimate may justify revision of such estimate. Future prices received for the sale of oil and gas may be different from those used in preparing these reports. The amounts and timing of future operating and development costs may also differ from those used. Accordingly, reserve estimates are often different from the quantities of oil and gas that are ultimately recovered.
      Proved reserves are the estimated quantities of natural gas, condensate and oil that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are proved reserves that can be expected to be recovered through existing wells with existing equipment and operating methods. The estimation of reserves requires substantial judgment on the part of petroleum engineers, resulting in imprecise determinations, particularly with respect to recent discoveries. The accuracy of any reserve estimate depends on the quality of available data and engineering and geological interpretation and judgment. Results of drilling, testing and production after the date of the estimate may result in revisions of the estimate. Accordingly, estimates of reserves are often materially different from the quantities of natural gas, condensate and oil that are ultimately recovered, and these estimates will change as future production and development information becomes available. The reserve data represent estimates only and should not be construed as being exact.
Difficulties in exploration and development could adversely affect our financial condition.
      The costs of drilling all types of wells are uncertain, as are the quantity of reserves to be found, the prices that NEG Holding, TransTexas or Panaco will receive for the oil or natural gas and the costs of operating each well. While each of NEG Holding, TransTexas and Panaco has successfully drilled wells, you should know that there are inherent risks in doing so, and those difficulties could materially affect our financial condition and results of operations. Also, just because we complete a well and begin producing oil or natural gas, we cannot assure you that we will recover our investment or make a profit.
Oil and gas prices are likely to be volatile.
      Our revenues, profitability and the carrying value of oil and gas properties are substantially dependent upon prevailing prices of, and demand for, oil and gas and the costs of acquiring, finding, developing and producing reserves. Historically, the markets for oil and gas have been volatile. Markets for oil and gas likely will continue to be volatile in the future. Prices for oil and gas are subject to wide fluctuations in response to: (1) relatively minor changes in the supply of, and demand for, oil and gas; (2) market uncertainty; and (3) a variety of additional factors, all of which are beyond our control. These factors include, among others: domestic and foreign political conditions; the price and availability of domestic and imported oil and gas; the level of consumer and industrial demand; weather, domestic and foreign government relations; and the price and availability of alternative fuels and overall economic conditions. Our production is weighted toward natural gas, making earnings and cash flow more sensitive to natural gas price fluctuations.

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There is inherent uncertainty in estimates of reserves which may affect future net cash flows.
      The basis for the success and long-term prospects for our oil and gas business is the price that we receive for our oil and gas. These prices are the primary factors for all aspects of our business including reserve values, future net cash flows, borrowing availability and results of operations. The reserve valuations are prepared annually by independent petroleum consultants, including the Pretax PV-10 values included elsewhere in this prospectus. However, there are many uncertainties inherent in preparing these reports and the third party consultants rely on information we provide them. The Pretax PV-10 calculations assume constant oil and gas prices, operating expenses and capital expenditures over the lives of the reserves. They also assume certain timing for completion of projects and that we will have the financial ability to conduct operations and capital expenditures without regard to factors independent of the reserve report. The actual results realized by the operations we propose to acquire may have historically varied from these reports and may do so in the future. The volumes estimated in these reports may also vary due to a variety of reasons including incorrect assumptions, unsuccessful drilling and the actual oil and gas prices that we receive.
      You should not assume that the Pretax PV-10 values of reserves represent the market value for those reserves. These values are prepared in accordance with strict guidelines imposed by the SEC. These valuations are the estimated discounted future net cash flows from our proved reserves. These estimates use prices that the operations we propose to acquire received or would have received on December 31, 2004 and use costs for operating and capital expenditures in effect at that date. These assumptions are then used to calculate a future cash flow stream that is discounted at a rate of 10%.
      The base prices used for the Pretax PV-10 calculation were public spot prices on December 31, 2004 adjusted by differentials to those spot market prices. These price adjustments were done on a property-by-property basis for the quality of the oil and gas and for transportation to the appropriate location.
Operating hazards and uninsured risks are inherent to the oil and gas industry.
      Our oil and gas business involves a variety of operating risks, including, but not limited to, unexpected formations or pressures, uncontrollable flows of oil, natural gas, brine or well fluids into the environment (including groundwater contamination), blowouts, fires, explosions, pollution and other risks, any of which could result in personal injuries, loss of life, damage to properties and substantial losses. Although we carry insurance at levels we believe are reasonable, we are not fully insured against all risks. Losses and liabilities arising from uninsured or under-insured events could have a material adverse effect on our financial condition and operations.
Our use of hedging arrangements could reduce our income.
      NEG Holding and TransTexas typically hedge a portion of oil and gas production during periods when market prices for products are higher than historical average prices. During 2004, NEG Holding and TransTexas hedged 61% and 57%, respectively, of annual natural gas production and 96% and 81%, respectively, of annual oil production.
      Typically, NEG Holding, TransTexas and Panaco have used swaps, cost-free collars and options to put products to a purchaser at a specified price, or floor. In these transactions, NEG Holding, TransTexas and Panaco will usually have the option to receive from the counterparty to the hedge a specified price or the excess of a specified price over a floating market price. If the floating price exceeds the fixed price, the hedging party is required to pay the counterparty all or a portion of this difference multiplied by the quantity hedged.
Government regulations impose costs on abandoning oil and gas facilities.
      Government regulations and lease terms require all oil and gas producers to plug and abandon platforms and production facilities at the end of the properties’ lives. The reserve valuations for NEG Holding, TransTexas and Panaco do not include the estimated costs of plugging the wells and abandoning the platforms and equipment on their properties, less any cash deposited in escrow accounts for these obligations. These costs are usually higher on offshore properties, as are most expenditures on offshore properties. As of

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December 31, 2004, the total estimated abandonment costs, net of $23.5 million already in escrow, were approximately $33.1 million. Those future liabilities are accounted for by accruing for them in depreciation, depletion and amortization expense over the lives of each property’s total proved reserves.
The oil and gas industry is highly competitive.
      There are many companies and individuals engaged in the exploration for and development of oil and gas properties. Competition is particularly intense with respect to the acquisition of oil and gas producing properties and securing experienced personnel. We encounter competition from various oil and gas companies in raising capital and in acquiring producing properties. Many of our competitors have financial and other resources considerably larger than ours.
Investments
We may not be able to identify suitable investments, and our investments may not result in favorable returns or may result in losses.
      Our partnership agreement allows us to take advantage of investment opportunities we believe exist outside of the real estate market. The equity securities in which we may invest include common stocks, preferred stocks and securities convertible into common stocks, as well as warrants to purchase these securities. The debt securities in which we may invest include bonds, debentures, notes, or non-rated mortgage-related securities, municipal obligations, bank debt and mezzanine loans. Certain of these securities may include lower rated or non-rated securities which may provide the potential for higher yields and therefore may entail higher risk and may include the securities of bankrupt or distressed companies. In addition, we may engage in various investment techniques, including derivatives, options and futures transactions, foreign currency transactions, “short” sales and leveraging for either hedging or other purposes. We may concentrate our activities by owning one or a few businesses or holdings, which would increase our risk. We may not be successful in finding suitable opportunities to invest our cash and our strategy of investing in undervalued assets may expose us to numerous risks.
Our investments may be subject to significant uncertainties.
      Our investments may not be successful for many reasons including, but not limited to:
  •  fluctuation of interest rates;
 
  •  lack of control in minority investments;
 
  •  worsening of general economic and market conditions;
 
  •  lack of diversification;
 
  •  inexperience with non-real estate areas;
 
  •  fluctuation of U.S. dollar exchange rates; and
 
  •  adverse legal and regulatory developments that may affect particular businesses.

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FORWARD-LOOKING STATEMENTS
      Some statements in this prospectus and the documents incorporated by reference are known as “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may relate to, among other things, future performance generally, business development activities, future capital expenditures, financing sources and availability and the effects of regulation and competition.
      When we use the words “believe,” “intend,” “expect,” “may,” “will,” “should,” “anticipate,” “could,” “estimate,” “plan,” “predict,” “project,” or their negatives, or other similar expressions, the statements which include those words are usually forward-looking statements. When we describe strategy that involves risks or uncertainties, we are making forward-looking statements.
      We warn you that forward-looking statements are only predictions. Actual events or results may differ as a result of risks that we face, including those set forth in the section of this prospectus called “Risk Factors.” Those risks are representative of factors that could affect the outcome of the forward-looking statements. These and the other factors discussed elsewhere in this prospectus and the documents incorporated by reference herein are not necessarily all of the important factors that could cause our results to differ materially from those expressed in our forward-looking statements. Forward-looking statements speak only as of the date they were made and we undertake no obligation to update them.
INDUSTRY DATA
      We refer to market and industry data throughout this prospectus that we have obtained from publicly available information and industry publications and other data that is based on the good faith estimates of our management, which estimates are based upon their review of internal surveys, independent industry publications and other publicly available information. Although we believe that these sources are reliable, we have not verified the accuracy or completeness of this information. We are not aware of any misstatements regarding the market and industry data presented in this prospectus, however, our estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the heading “Risk Factors.”

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USE OF PROCEEDS
      We will not receive any proceeds from the exchange of the new notes for the private notes pursuant to the exchange offer. On February 7, 2005, we issued and sold the private notes in a private offering, receiving net proceeds of approximately $471.5 million, after deducting selling and offering expenses.
      We intend to use the net proceeds of the private offering for general business purposes, including to pursue our primary business strategy of acquiring undervalued assets in either our existing lines of business or other businesses and to provide additional capital to grow our existing business.
      We will use the net proceeds of the private offering and conduct our activities in a manner so as not to be deemed an investment company under the Investment Company Act. Generally, this means that we do not intend to enter the business of investing in securities and that no more than 40% of our total assets will be invested in securities. The portion of our assets invested in each type of security or any single issuer or industry will not be limited.

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THE EXCHANGE OFFER
Purpose of the Exchange Offer
      In connection with the sale of the private notes, we and the initial purchaser entered into a registration rights agreement in which we and AREH agreed to:
  •  file a registration statement with the Securities and Exchange Commission with respect to the exchange of the private notes for new notes, or the exchange offer registration statement, no later than 180 days after the date we issued the private notes;
 
  •  use all commercially reasonable efforts to have the exchange offer registration statement declared effective by the SEC on or prior to 300 days after the issuance date; and
 
  •  commence the offer to exchange new notes for the private notes and use all commercially reasonable efforts to issue on or prior to 30 business days, or longer if required by the federal securities laws, after the date on which the exchange offer registration statement was declared effective by the SEC, new notes in exchange for all private notes tendered prior to that date in the exchange offer.
      We are making the exchange offer to satisfy certain of our obligations under the registration rights agreement. We filed a copy of the registration rights agreement as an exhibit to the exchange offer registration statement.
Resale of Exchange Notes
      Under existing interpretations of the Securities Act of 1933 by the staff of the SEC contained in several no-action letters to third parties, we believe that the new notes will generally be freely transferable by holders who have validly participated in the exchange offer without further registration under the Securities Act of 1933 (assuming the truth of certain representations required to be made by each holder of notes, as set forth below). For additional information on the staff’s position, we refer you to the following no-action letters: Exxon Capital Holdings Corporation, available April 13, 1988; Morgan Stanley & Co. Incorporated, available June 5, 1991; and Shearman & Sterling, available July 2, 1993. However, any purchaser of private notes who is one of our “affiliates” or who intends to participate in the exchange offer for the purpose of distributing the new notes or who is a broker-dealer who purchased private notes from us to resell pursuant to Rule 144A or any other available exemption under the Securities Act of 1933:
  •  will not be able to tender its private notes in the exchange offer;
 
  •  will not be able to rely on the interpretations of the staff of the SEC; and
 
  •  must comply with the registration and prospectus delivery requirements of the Securities Act of 1933 in connection with any sale or transfer of the private notes unless such sale or transfer is made pursuant to an exemption from these requirements.
      If you wish to exchange private notes for new notes in the exchange offer, you will be required to make representations in a letter of transmittal which accompanies this prospectus, including that:
  •  you are not our “affiliate” (as defined in Rule 405 under the Securities Act of 1933);
 
  •  any new notes to be received by you will be acquired in the ordinary course of your business;
 
  •  you have no arrangement or understanding with any person to participate in the distribution of the new notes in violation of the provisions of the Securities Act of 1933;
 
  •  if you are not a broker-dealer, you are not engaged in, and do not intend to engage in, a distribution of new notes; and
 
  •  if you are a broker-dealer, you acquired the private notes for your own account as a result of market-making or other trading activities (and as such, you are a “participating broker-dealer”), you have not entered into any arrangement or understanding with American Real Estate Partners, L.P. or an affiliate

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  of American Real Estate Partners, L.P. to distribute the new notes and you will deliver a prospectus meeting the requirements of the Securities Act of 1933 in connection with any resale of the new notes.
      Rule 405 under the Securities Act of 1933 provides that an “affiliate” of, or person “affiliated” with, a specified person, is a person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the person specified.
      The SEC has taken the position that participating broker-dealers may be deemed to be “underwriters” within the meaning of the Securities Act of 1933, and accordingly may fulfill their prospectus delivery requirements with respect to the new notes, other than a resale of an unsold allotment from the original sale of the notes, with the prospectus contained in the exchange offer registration statement. Under the registration rights agreement, we have agreed to use commercially reasonable efforts to allow participating broker-dealers and other persons, if any, subject to similar prospectus delivery requirements, to use the prospectus contained in the exchange offer registration statement in connection with the resale of the new notes for a period of 270 days from the issuance of the new notes.
Terms of the Exchange Offer
      This prospectus and the accompanying letter of transmittal contain the terms and conditions of the exchange offer. Upon the terms and subject to the conditions set forth in this prospectus and in the accompanying letter of transmittal, we will accept for exchange all private notes which are properly tendered and not withdrawn on or prior to 5:00 p.m., New York City time, on the expiration date. After authentication of the new notes by the trustee or an authentication agent, we will issue and deliver $1,000 principal amount of new notes in exchange for each $1,000 principal amount of outstanding private notes accepted in the exchange offer. Holders may tender some or all of their private notes in the exchange offer in denominations of $1,000 and integral multiples thereof.
      The form and terms of the new notes are identical in all material respects to the form and terms of the private notes, except that:
        (1) the offering of the new notes has been registered under the Securities Act of 1933;
 
        (2) the new notes generally will not be subject to transfer restrictions or have registration rights; and
 
        (3) certain provisions relating to liquidated damages on the private notes provided for under certain circumstances will be eliminated.
      The new notes will evidence the same debt as the private notes. The new notes will be issued under and entitled to the benefits of the indenture.
      As of the date of this prospectus, $480 million aggregate principal amount of the private notes is outstanding. In connection with the issuance of the private notes, we made arrangements for the private notes to be issued and transferable in book-entry form through the facilities of the Depository Trust Company acting as a depositary. The new notes will also be issuable and transferable in book-entry form through the Depository Trust Company.
      The exchange offer is not conditioned upon any minimum aggregate principal amount of private notes being tendered. However, our obligation to accept private notes for exchange pursuant to the exchange offer is subject to certain customary conditions that we describe under “— Conditions” below.
      Holders who tender private notes in the exchange offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the letter of transmittal, transfer taxes with respect to the exchange of private notes pursuant to the exchange offer. We will pay all charges and expenses, other than certain applicable taxes, in connection with the exchange offer. See “— Solicitation of Tenders; Fees and Expenses” for more detailed information regarding the expenses of the exchange offer.
      By executing or otherwise becoming bound by the letter of transmittal, you will be making the representations described under “— Procedures for Tendering” below.

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Expiration Date; Extensions; Amendments
      The term “expiration date” will mean 5:00 p.m., New York City time, on                     , 2005, unless we, in our sole discretion, extend the exchange offer, in which case the term “expiration date” will mean the latest date and time to which we extend the exchange offer.
      To extend the exchange offer, we will:
  •  notify the exchange agent of any extension orally or in writing; and
 
  •  notify the registered holders of the private notes by means of a press release or other public announcement, each before 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date.
      We reserve the right, in our reasonable discretion:
  •  to delay accepting any private notes;
 
  •  to extend the exchange offer; or
 
  •  if any conditions listed below under “— Conditions” are not satisfied, to terminate the exchange offer by giving oral or written notice of the delay, extension or termination to the exchange agent.
      We will follow any delay in acceptance, extension or termination as promptly as practicable by oral or written notice to the registered holders. If we amend the exchange offer in a manner we determine constitutes a material change, we will promptly disclose the amendment in a prospectus supplement that we will distribute to the registered holders.
Interest on the New Notes
      Interest on the new notes will accrue from the last interest payment date on which interest was paid on the private notes surrendered in exchange for new notes or, if no interest has been paid on the private notes, from the issue date of the private notes, February 7, 2005. Interest on the new notes will be payable semi-annually on February 15 and August 15 of each year, commencing on August 15, 2005.
Procedures for Tendering
      You may tender your private notes in the exchange offer only if you are a registered holder of private notes. To tender in the exchange offer, you must:
  •  complete, sign and date the letter of transmittal or a facsimile of the letter of transmittal;
 
  •  have the signatures thereof guaranteed if required by the letter of transmittal; and
 
  •  mail or otherwise deliver the letter of transmittal or such facsimile to the exchange agent, at the address listed below under “— Exchange Agent” for receipt prior to the expiration date.
      In addition, either:
  •  the exchange agent must receive certificates for the private notes along with the letter of transmittal into its account at the Depository Trust Company pursuant to the procedure described under “— Book-Entry Transfer” before the expiration date;
 
  •  the exchange agent must receive a timely confirmation of a book-entry transfer, if the procedure is available, into its account at the Depository Trust Company pursuant to the procedure described under “— Book-Entry Transfer” before the expiration date; or
 
  •  you must comply with the procedures described under “Guaranteed Delivery Procedures.”
      Your tender, if not withdrawn before the expiration date, will constitute an agreement between you and us in accordance with the terms and subject to the conditions described in this prospectus and in the letter of transmittal.

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      The method of delivery of private notes and the letter of transmittal and all other required documents to the exchange agent is at your election and risk. We recommend that, instead of delivery by mail, you use an overnight or hand delivery service. In all cases, you should allow sufficient time to ensure delivery to the exchange agent prior to the expiration date. You should not send letters of transmittal or private notes to us. You may request that your respective brokers, dealers, commercial banks, trust companies or nominees effect the transactions described above for you.
      If you are a beneficial owner whose private notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and you wish to tender your private notes, you should contact such registered holder promptly and instruct such registered holder to tender on your behalf. If you wish to tender on your own behalf, prior to completing and executing the letter of transmittal and delivering your private notes, you must either:
  •  make appropriate arrangements to register ownership of your private notes in your name; or
 
  •  obtain a properly completed bond power from the registered holder.
      The transfer of record ownership may take considerable time unless private notes are tendered:
  •  by a registered holder who has not completed the box entitled “Special Registration Instructions” or “Special Delivery Instruction” on the letter of transmittal; or
 
  •  for the account of an “Eligible Institution” which is either:
  •  a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc.;
 
  •  a commercial bank or trust company located or having an office or correspondent in the United States; or
 
  •  otherwise an “eligible guarantor institution” within meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934.
An Eligible Institution must guarantee the signatures on a letter of transmittal or a notice of withdrawal described below under “— Withdrawal of Tenders.”
      If the letter of transmittal is signed by a person other than the registered holder, such private notes must be endorsed or accompanied by appropriate bond powers which authorize such person to tender the private notes on behalf of the registered holder, in either case signed as the name of the registered holder or holders appears on the private notes.
      If the letter of transmittal or any private notes or bond powers are signed or endorsed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and unless waived by us, they must submit evidence satisfactory to us of their authority to so act with the letter of transmittal.
      The letter of transmittal will include representations to us as set forth under “Resale of Exchange Notes.”
      You should note that:
  •  All questions as to the validity, form, eligibility, including time of receipt, acceptance and withdrawal of the tendered private notes will be determined by us in our sole discretion, which determination will be final and binding;
 
  •  We reserve the absolute right to reject any and all private notes not properly tendered or any private notes the acceptance of which would, in our judgment or the judgment of our counsel, be unlawful;
 
  •  We also reserve the absolute right to waive any irregularities or conditions of tender as to particular private notes. Our interpretation of the terms and conditions of the exchange offer, including the instructions in the letter of transmittal, will be final and binding on all parties. Unless waived, any

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  defects or irregularities in connection with tenders of private notes must be cured within such time as we shall determine;
 
  •  Although we intend to notify holders of defects or irregularities with respect to any tender of private notes, neither we, the exchange agent nor any other person shall be under any duty to give notification of any defect or irregularity with respect to tenders of private notes, nor shall any of them incur any liability for failure to give such notification; and
 
  •  Tenders of private notes will not be deemed to have been made until such irregularities have been cured or waived. Any private notes received by the exchange agent that we determine are not properly tendered or the tender of which is otherwise rejected by us and as to which the defects or irregularities have not been cured or waived by us will be returned by the exchange agent to the tendering holder unless otherwise provided in the letter of transmittal, as soon as practicable following the expiration date.
Book-Entry Transfer
      The exchange agent will make a request promptly after the date of this prospectus to establish accounts with respect to the private notes at the Depository Trust Company for the purpose of facilitating the exchange offer. Any financial institution that is a participant in the Depository Trust Company’s system may make book-entry delivery of private notes by causing the Depository Trust Company to transfer such private notes into the exchange agent’s account with respect to the private notes in accordance with the Depository Trust Company’s Automated Tender Offer Program procedures for such transfer. However, the exchange for the private notes so tendered will only be made after timely confirmation of such book-entry transfer of private notes into the exchange agent’s account, and timely receipt by the exchange agent of an agent’s message and any other documents required by the letter of transmittal. The term “agent’s message” means a message, transmitted by the Depository Trust Company and received by the exchange agent and forming a part of the confirmation of a book-entry transfer, which states that the Depository Trust Company has received an express acknowledgment from a participant that is tendering private notes that such participant has received the letter of transmittal and agrees to be bound by the terms of the letter of transmittal, and that we may enforce such agreement against the participant.
      Although delivery of private notes may be effected through book-entry transfer into the exchange agent’s account at the Depository Trust Company, you must transmit and the exchange agent must receive, the letter of transmittal (or facsimile thereof) properly completed and duly executed with any required signature guarantee and all other required documents prior to the expiration date, or you must comply with the guaranteed delivery procedures described below. Delivery of documents to the Depository Trust Company does not constitute delivery to the exchange agent.
Guaranteed Delivery Procedures
      If you wish to tender your private notes but your private notes are not immediately available, or time will not permit your private notes or other required documents to reach the exchange agent before the expiration date, or the procedure for book-entry transfer cannot be completed on a timely basis, you may effect a tender if:
        (1) the tender is made through an Eligible Institution;
 
        (2) prior to the expiration date, the exchange agent receives from such Eligible Institution a properly completed and duly executed notice of guaranteed delivery, by facsimile transmittal, mail or hand delivery
  •  stating the name and address of the holder, the certificate number or numbers of such holder’s private notes and the principal amount of such private notes tendered;
 
  •  stating that the tender is being made thereby; and

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  •  guaranteeing that, within three New York Stock Exchange trading days after the expiration date, the letter of transmittal, or a facsimile thereof, together with the certificate(s) representing the private notes to be tendered in proper form for transfer, or confirmation of a book-entry transfer into the exchange agent’s account at the Depository Trust Company of private notes delivered electronically, and any other documents required by the letter of transmittal, will be deposited by the Eligible Institution with the exchange agent; and
        (3) such properly completed and executed letter of transmittal, or a facsimile thereof, together with the certificate(s) representing all tendered private notes in proper form for transfer, or confirmation of a book-entry transfer into the exchange agent’s account at the Depository Trust Company of private notes delivered electronically and all other documents required by the letter of transmittal are received by the exchange agent within three New York Stock Exchange trading days after the expiration date.
      Upon request, the exchange agent will send to you a notice of guaranteed delivery if you wish to tender your private notes according to the guaranteed delivery procedures described above.
Withdrawal of Tenders
      Except as otherwise provided in this prospectus, you may withdraw tenders of private notes at any time prior to the expiration date.
      For a withdrawal to be effective, the exchange agent must receive a written or facsimile transmission notice of withdrawal at its address set forth this prospectus prior to the expiration date. Any such notice of withdrawal must:
  •  specify the name of the person who deposited the private notes to be withdrawn;
 
  •  identify the private notes to be withdrawn, including the certificate number or number and principal amount of such private notes or, in the case of private notes transferred by book-entry transfer, the name and number of the account at the Depository Trust Company to be credited; and
 
  •  be signed in the same manner as the original signature on the letter of transmittal by which such private notes were tendered, including any required signature guarantee.
      We will determine in our sole discretion all questions as to the validity, form and eligibility, including time of receipt, of such withdrawal notices, and our determination shall be final and binding on all parties. We will not deem any properly withdrawn private notes to have been validly tendered for purposes of the exchange offer, and we will not issue new notes with respect those private notes unless you validly retender the withdrawn private notes. You may retender properly withdrawn private notes following one of the procedures described above under “— Procedures for Tendering” at any time prior to the expiration date.
Conditions
      Notwithstanding any other term of the exchange offer, we will not be required to accept for exchange, or exchange the new notes for, any private notes, and may terminate the exchange offer as provided in this prospectus before the acceptance of the private notes, if:
  •  the exchange offer violates applicable law, rules or regulations or an applicable interpretation of the staff of the SEC;
 
  •  an action or proceeding has been instituted or threatened in any court or by any governmental agency which might materially impair our ability to proceed with the exchange offer;
 
  •  there has been proposed, adopted or enacted any law, rule or regulation that, in our reasonable judgment would impair materially our ability to consummate the exchange offer; or
 
  •  all governmental approvals which we deem necessary for the completion of the exchange offer have not been obtained.

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      If we determine in our reasonable discretion that any of these conditions are not satisfied, we may:
  •  refuse to accept any private notes and return all tendered private notes to you;
 
  •  extend the exchange offer and retain all private notes tendered before the exchange offer expires, subject, however, to your rights to withdraw the private notes; or
 
  •  waive the unsatisfied conditions with respect to the exchange offer and accept all properly tendered private notes that have not been withdrawn.
      If the waiver constitutes a material change to the exchange offer, we will promptly disclose the waiver by means of a prospectus supplement that we will distribute to the registered holders of the private notes.
Exchange Agent
      We have appointed Wilmington Trust Company, the trustee under the indenture, as exchange agent for the exchange offer. You should send all executed letters of transmittal to the exchange agent at one of the addresses set forth below. In such capacity, the exchange agent has no fiduciary duties and will be acting solely on the basis of directions of our company. You should direct questions, requests for assistance and requests for additional copies of this prospectus or of the letter of transmittal and requests for a notice of guaranteed delivery to the exchange agent addressed as follows:
By Certified or Registered Mail:
Wilmington Trust Company
DC-1626 Processing Unit
P.O. Box 8861
Wilmington, DE 19899-8861
By Overnight Courier or Hand Delivery:
Wilmington Trust Company
Corporate Capital Markets
1100 North Market Street
Wilmington, DE 19890-1626
By Facsimile:
(302) 636-4145
Confirm By Telephone:
(302) 636-6470
      Delivery to an address or facsimile number other than those listed above will not constitute a valid delivery.
      The trustee does not assume any responsibility for and makes no representation as to the validity or adequacy of this prospectus or the notes.
Solicitation of Tenders; Fees And Expenses
      We will pay all expenses of soliciting tenders pursuant to the exchange offer. We are making the principal solicitation by mail. Our officers and regular employees may make additional solicitations in person or by telephone or telecopier.
      We have not retained any dealer-manager in connection with the exchange offer and will not make any payments to brokers, dealers or other persons soliciting acceptances of the exchange offer. We will, however, pay the exchange agent reasonable and customary fees for its services and will reimburse the exchange agent for its reasonable out-of-pocket costs and expenses in connection therewith.
      We also may pay brokerage houses and other custodians, nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding copies of this prospectus, letters of transmittal and related documents to the beneficial owners of the private notes and in handling or forwarding tenders for exchange.

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      We will pay the expenses to be incurred in connection with the exchange offer, including fees and expenses of the exchange agent and trustee and accounting and legal fees and printing costs.
      We will pay all transfer taxes, if any, applicable to the exchange of private notes for new notes pursuant to the exchange offer. If, however, certificates representing new notes or private notes for principal amounts not tendered or accepted for exchange are to be delivered to, or are to be registered or issued in the name of, any person other than the registered holder of the private notes tendered, or if tendered private notes are registered in the name of any person other than the person signing the letter of transmittal, or if a transfer tax is imposed for any reason other than the exchange of private notes pursuant to the exchange offer, then the amount of any such transfer taxes, whether imposed on the registered holder or any other persons, will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with the letter of transmittal, the amount of such transfer taxes will be billed by us directly to such tendering holder.
Consequences of Failure to Exchange
      Participation in the exchange offer is voluntary. We urge you to consult your financial and tax advisors in making your decisions on what action to take. Private notes that are not exchanged for new notes pursuant to the exchange offer will remain restricted securities. Accordingly, those private notes may be resold only:
  •  to a person whom the seller reasonably believes is a qualified institutional buyer in a transaction meeting the requirements of Rule 144A under the Securities Act of 1933;
 
  •  in a transaction meeting the requirements of Rule 144 under the Securities Act of 1933;
 
  •  outside the United States to a foreign person in a transaction meeting the requirements of Rule 903 or 904 of Regulation S under the Securities Act of 1933;
 
  •  in accordance with another exemption from the registration requirements of the Securities Act of 1933 and based upon an opinion of counsel if we so request;
 
  •  to us; or
 
  •  pursuant to an effective registration statement.
      In each case, the private notes may be resold only in accordance with any applicable securities laws of any state of the United States or any other applicable jurisdiction.

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UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA OF
AMERICAN REAL ESTATE PARTNERS, L.P. AND SUBSIDIARIES
      The unaudited pro forma condensed consolidated financial statement information set forth below is presented to reflect the pro forma effects of the following transactions as if they occurred on the dates indicated as discussed below:
        (i) The Acquisitions; and
 
        (ii) The issuance of $480.0 million of Senior Notes due 2013 at an interest rate of 71/8% per annum in February 2005.
      The Acquisitions will be accounted for as a combination of entities under common control and are recorded at the historical basis of the entities as of the date acquired by AREP. AREP will prepare restated financial statements to include the historical financial position and results of operations up to the date of the Acquisitions for periods that the entities were under common control. The unaudited condensed historical combined balance sheet at March 31, 2005 included herein includes the combination of NEG Holding, GB Holdings and Panaco, which presentation AREP anticipates will be materially consistent with AREP’s presentation of its actual consolidated balance sheet after the consummation of the Acquisitions.
      The unaudited pro forma condensed consolidated balance sheet has been prepared as if the Acquisitions had occurred on March 31, 2005. The unaudited pro forma condensed consolidated balance sheet as of March 31, 2005 gives effect to the unaudited pro forma adjustments necessary to account for the Acquisitions.
      The unaudited pro forma condensed historical combined statements of earnings for each of the years ended December 31, 2004, 2003 and 2002 (1) combine the historical consolidated statements of earnings of NEG Holding and GB Holdings for each such year, which financial statements are included elsewhere in this prospectus, and (2) reflects the combination of such companies during a period of common control, which presentation AREP anticipates will be materially consistent with AREP’s presentation of restated consolidated statements of earnings after the consummation of the Acquisitions.
      The unaudited pro forma condensed consolidated statements of earnings for the three months ended March 31, 2005 (1) combine the historical consolidated statements of earnings of NEG Holding, GB Holdings and Panaco for the three months ended March 31, 2005 which financial statements are included elsewhere in this prospectus, and (2) reflect the combination of such companies during a period of common control, which presentation AREP anticipates will be materially consistent with AREP’s presentation of restated consolidated statements of earnings after the consummation of the Acquisitions.
      The unaudited pro forma condensed consolidated financial statement information is based on, and should be read together with (1) AREP’s consolidated financial statements as of March 31, 2005 (unaudited) and for the three months ended March 31, 2005 and 2004 (unaudited) and for the years ended December 31, 2004, 2003 and 2002, (2) AREP’s supplemental consolidated financial statements included elsewhere in this prospectus, giving effect to the acquisition of TransTexas on April 6, 2005 for $180.0 million of cash, (3) the consolidated financial statements as of March 31, 2005 (unaudited) and for the three months ended March 31, 2005 and 2004 (unaudited) and for the years ended December 31, 2004, 2003 and 2002 of each of NEG Holding and GB Holdings, and (4) the financial statements as of December 31, 2004 and for the three months ended March 31, 2005 and 2004 (unaudited) and for the year ended December 31, 2004 of Panaco.

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AMERICAN REAL ESTATE PARTNERS, L.P.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
March 31, 2005
                                                                             
    Historical(1)            
        Pro Forma   Pro Forma    
    AREP   NEG       GB   Intercompany   Historical   Adjustments   Intercompany    
    (Supplemental)(2)   Holding   Panaco   Holdings   Adjustments   Combined   Acquisitions(1)(2)   Adjustments(3)   Pro Forma
                                     
    (In thousands)
ASSETS
Current Assets
                                                                       
 
Cash and cash equivalents
  $ 1,250,074     $ 10,999     $ 9,721     $ 14,929     $       $ 1,285,723     $ (180,000 )   $       $ 1,105,723  
 
Investment in U.S. Government and Agency obligations
    68,894                                       68,894                       68,894  
 
Marketable equity and debt securities
    68,497                                       68,497                       68,497  
 
Due from brokers
    147,223                                       147,223                       147,223  
 
Restricted cash
    28,537                                       28,537                       28,537  
 
Receivables and other assets
    52,567       19,992       25,642       16,421       (11,549 )     103,073                       103,073  
 
Real estate leased to others under the financing method
    3,740                                       3,740                       3,740  
 
Properties held for sale
    33,995                                       33,995                       33,995  
 
Current portion of investment in debt securities of affiliates
    5,429                               (5,429 )                            
 
Current portion of deferred tax asset
    2,685               3,567                       6,252                       6,252  
                                                       
   
Total current assets
    1,661,641       30,991       38,930       31,350       (16,978 )     1,745,934       (180,000 )           1,565,934  
 
Investment in U.S. Government and Agency obligations
    5,533                                       5,533                       5,533  
 
Other investments
    244,602                                       244,602       466,000       (466,000 )     244,602  
 
Land and construction-in- progress
    106,000                                       106,000                       106,000  
 
Real estate leased to others:
                                                                       
 
Accounted for under the financing method
    75,949                                       75,949                       75,949  
 
Accounted for under the operating method, net
    51,127                                       51,127                       51,127  
 
Oil and gas properties, net
    180,241       245,216       96,319                       521,776                       521,776  
Hotel, casino and resort operating properties, net:
                                                                       
 
Hotel and Casino
    288,890                       168,237               457,127                       457,127  
 
Hotel and resorts
    46,041                                       46,041                       46,041  
 
Deferred finance costs and other assets
    24,831       4,052       19,632       17,467               65,982                       65,982  
 
Long-term portion of investment in debt securities of affiliates
    91,864                               (91,864 )                            
 
Investment in NEG Holding LLC
    97,693                               (97,693 )                            
 
Equity interest in GB Holdings, Inc. 
    9,138                               (9,138 )                            
 
Equity investment
          2,170                               2,170                       2,170  
 
Deferred tax asset
    52,147               21,340                       73,487                       73,487  
                                                       
   
Total
  $ 2,935,697     $ 282,429     $ 176,221     $ 217,054     $ (215,673 )   $ 3,395,728     $ 286,000     $ (466,000 )   $ 3,215,728  
                                                       

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AMERICAN REAL ESTATE PARTNERS, L.P.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET — (Continued)
                                                                             
    Historical(1)            
        Pro Forma   Pro Forma    
    AREP   NEG       GB   Intercompany   Historical   Adjustments   Intercompany    
    (Supplemental)(2)   Holding   Panaco   Holdings   Adjustments   Combined   Acquisitions(1)(2)   Adjustments(3)   Pro Forma
                                     
    (In thousands)
LIABILITIES AND PARTNERS’/ SHAREHOLDERS’ EQUITY
Current Liabilities
                                                                       
 
Current portion of mortgages payable
  $ 4,205     $       $       $       $       $ 4,205     $       $       $ 4,205  
 
Mortgages on properties held for sale
    20,372                                       20,372                       20,372  
 
Due to affiliate
    10,000                               (10,000 )                            
 
Line of credit
                          4,000               4,000                       4,000  
 
Current portion note payable
                          43,741               43,741                       43,741  
 
Current portion of long-term debt
                  5,429               (5,429 )                            
 
Accounts payable and other liabilities
    96,814       35,699       15,029       22,500       (207 )     169,835                       169,835  
 
Securities sold not yet purchased
    83,750                                       83,750                       83,750  
                                                       
   
Total current liabilities
    215,141       35,699       20,458       70,241       (15,636 )     325,903                   325,903  
                                                       
 
Other liabilities
    28,133       13,782       2,258       5,881       (1,342 )     48,712                       48,712  
 
Mortgages payable:
                                                                       
 
Real estate leased to others
    55,614                                       55,614                       55,614  
 
Senior secured notes payable and credit facility
    215,000                                       215,000                       215,000  
 
Senior unsecured notes payable, net
    350,679                                       350,679                       350,679  
 
Senior unsecured notes payable
    480,000                                       480,000                       480,000  
 
Long-term debt, net of current portion
          66,834       31,214       66,259       (95,138 )     69,169                       69,169  
 
Asset retirement obligation
    3,999       3,116       33,600                       40,715                       40,715  
 
Preferred limited partnership units
    108,006                                       108,006                       108,006  
                                                       
   
Total long-term liabilities
    1,241,431       83,732       67,072       72,140       (96,480 )     1,367,895                   1,367,895  
                                                       
 
Warrants in Atlantic Coast Entertainment Holdings, Inc. 
                          43,587       (43,587 )                            
                                                       
Commitments and contingencies
                                                                       
Minority interests
                                  16,808       16,808                       16,808  
Partners’/Shareholders Equity
                                                                     
 
Limited partners equity
    1,383,913                                       1,383,913       466,000       (6,773 )     1,843,140  
 
General partner equity
    107,133                                       107,133               (433,230 )     (326,097 )
 
Treasury units at cost
    (11,921 )                                     (11,921 )                     (11,921 )
 
Shareholders’ equity
          162,998       88,691       31,086       (76,778 )     205,997       (180,000 )     (25,997 )      
                                                       
 
Partners’/ Shareholders’ equity
    1,479,125       162,998       88,691       31,086       (76,778 )     1,685,122       286,000       (466,000 )     1,505,122  
                                                       
   
Total
  $ 2,935,697     $ 282,429     $ 176,221     $ 217,054     $ (215,673 )   $ 3,395,728     $ 286,000     $ (466,000 )   $ 3,215,728  
                                                       

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AMERICAN REAL ESTATE PARTNERS, L.P.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
Three Months Ended March 31, 2005
                                                                   
    Historical(1)        
             
    AREP   NEG       GB   Intercompany   Historical   Debt    
    (Supplemental)(2)   Holding   Panaco   Holdings   Adjustments   Combined   Offering(5)   Pro Forma
                                 
    (In thousands, except unit and per unit data)
Revenues:
                                                               
 
Hotel and casino operating income
  $ 82,838     $       $       $ 39,965     $ (136 )   $ 122,667     $       $ 122,667  
 
Land, house and condominium sales
    8,279                                       8,279               8,279  
 
Interest income on financing leases
    1,966                                       1,966               1,966  
 
Interest income on U.S. Government and Agency obligations and other investments
    12,902               132       107       (602 )     12,539               12,539  
 
Rental income
    2,035                                       2,035               2,035  
 
Hotel and resort operating income
    5,563                                       5,563               5,563  
 
Oil and gas operating income
    15,422       25,490       12,707                       53,619               53,619  
 
Accretion of investment in NEG Holding LLC
    9,893                               (9,893 )                    
 
NEG management fee
    2,108                               (2,108 )                    
 
Dividend and other income
    4,206                                       4,206               4,206  
 
Equity in losses of equity method investees
    (986 )                             986                      
                                                 
      144,226       25,490       12,839       40,072       (11,753 )     210,874             210,874  
                                                 
Expenses:
                                                               
 
Hotel and casino operating expenses
    57,624                       37,468       (304 )     94,788               94,788  
 
Cost of land, house and condominium sales
    7,047                                       7,047               7,047  
 
Hotel and resort operating expenses
    5,405                                       5,405               5,405  
 
Oil and gas operating expenses
    2,866       6,449       5,551               (2,108 )     12,758               12,758  
 
Interest expense
    19,265       916       604       2,451       (1,074 )     22,162       3,575       25,737  
 
Depreciation, depletion and amortization
    16,167       6,688       4,842       4,026               31,723               31,723  
 
General and administrative expenses
    7,610                                       7,610               7,610  
 
Property expenses
    952                                       952               952  
                                                 
      116,936       14,053       10,997       43,945       (3,486 )     182,445       3,575       186,020  
                                                 
 
Operating income (loss)
    27,290       11,437       1,842       (3,873 )     (8,267 )     28,429       (3,575 )     24,854  
Other gains and (losses):
                                                               
 
Other losses
    (180 )                                     (180 )             (180 )
 
Unrealized gains on securities sold short
    21,704                                       21,704               21,704  
 
Gain on sales and disposition of real estate and other assets
    186                       4               190               190  
 
Debt restructuring/ reorganization costs
                          (24 )             (24 )             (24 )
 
Change in fair value of derivative contracts
    (9,813 )     (22,620 )     (6,336 )                     (38,769 )             (38,769 )
 
Minority interest
                                  932       932               932  
                                                 
 
Income (loss) from continuing operations before income taxes
    39,187       (11,183 )     (4,494 )     (3,893 )     (7,335 )     12,282       (3,575 )     8,707  
 
Income tax (expense) benefit
    (4,782 )             1,624       (247 )             (3,405 )             (3,405 )
                                                 
 
Income (loss) from continuing operations
  $ 34,405     $ (11,183 )   $ (2,870 )   $ (4,140 )   $ (7,335 )   $ 8,877     $ (3,575 )   $ 5,302  
                                                 
Income from continuing operations attributable to:
                                                               
 
Limited partners
  $ 38,940                                                     $ 10,416  
 
General partner
    (4,535 )                                                     (5,114 )
                                                 
    $ 34,405                                                     $ 5,302  
                                                 
Income from continuing operations per LP unit:
                                                               
Basic earnings:
                                                               
 
Income from continuing operations per LP unit
  $ 0.84                                                     $ 0.17  
                                                 
 
Weighted average units outstanding
    46,098,284                                                       62,167,250  
                                                 
Diluted earnings:
                                                               
 
Income from continuing operations per LP unit
  $ 0.81                                                     $ 0.17  
                                                 
 
Weighted average units and equivalent partnership units outstanding
    49,857,622                                                       62,167,250  
                                                 

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AMERICAN REAL ESTATE PARTNERS, L.P.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
Year Ended December 31, 2004
                                                                                   
                        Other Pro Forma Adjustments    
                             
            Panaco        
    Historical(1)       Intercompany        
            and        
    AREP   NEG   GB   Intercompany   Historical       Bankruptcy   Debt   Prior Debt    
    (Supplemental)(2)   Holding   Holdings   Adjustments   Combined   Panaco(1)   Adjustment(4)   Offering(5)   Offering(6)   Pro Forma
                                         
    (In thousands, except unit and per unit data)
Revenues:
                                                                               
 
Hotel and casino operating income
  $ 299,981     $       $ 171,243     $ (359 )   $ 470,865     $       $       $       $       $ 470,865  
 
Land, house and condominium sales
    26,591                               26,591                                       26,591  
 
Interest income on financing leases
    9,880                               9,880                                       9,880  
 
Interest income on U.S. Government and Agency obligations and other investments
    44,376       449       422       (156 )     45,091       684       (684 )                     45,091  
 
Rental income
    7,916                               7,916                                       7,916  
 
Hotel and resort operating income
    16,211                               16,211                                       16,211  
 
Accretion of investment in NEG Holding LLC
    34,432                       (34,432 )                                            
 
NEG management fee
    6,887                       (6,887 )                                            
 
Dividend and other income
    3,616                               3,616       48                               3,664  
 
Equity in losses of equity method investees
    (2,113 )     (519 )             2,113       (519 )                                     (519 )
 
Oil and gas operating income
    58,419       78,727                       137,146       51,234                               188,380  
                                                             
      506,196       78,657       171,665       (39,721 )     716,797       51,966       (684 )                 768,079  
                                                             
Expenses:
                                                                               
 
Hotel and casino operating expenses
    227,603               154,252       (639 )     381,216                                       381,216  
 
Cost of land, house and condominium sales
    18,486                               18,486                                       18,486  
 
Hotel and resort operating expenses
    12,730                               12,730                                       12,730  
 
Interest expense
    49,669       2,716       11,115       (4,754 )     58,746       2,517       (2,321 )     35,263       12,285       106,490  
 
Depreciation, depletion and amortization
    68,291       21,647       14,898               104,836       25,965                               130,801  
 
General and administrative expenses
    20,952                               20,952                                       20,952  
 
Property expenses
    4,340                               4,340                                       4,340  
 
Oil and gas operating expenses
    13,816       25,172               (6,162 )     32,826       18,095       (725 )                     50,196  
 
Provision for loss on real estate
    3,150                               3,150                                       3,150  
                                                             
      419,037       49,535       180,265       (11,555 )     637,282       46,577       (3,046 )     35,263       12,285       728,361  
                                                             
 
Operating income (loss)
    87,159       29,122       (8,600 )     (28,166 )     79,515       5,389       2,362       (35,263 )     (12,285 )     39,718  
Other gains and (losses):
                                                                               
 
Gain on sale of other assets
    1,680                               1,680                                       1,680  
 
Gain on sale of marketable equity and debt securities and other investments
    40,159                               40,159                                       40,159  
 
Unrealized losses on securities sold short
    (23,619 )                             (23,619 )                                     (23,619 )
 
Impairment loss on equity interest in GB Holdings, Inc. 
    (15,600 )                             (15,600 )                                     (15,600 )
 
Gain on retirement/ restructuring of debt
                                        51,268       (51,268 )                      
 
Gain on restructuring of payables
                                        12,495       (12,495 )                      
 
Gain (loss) on sale and disposition of real estate and other assets
    5,262               (152 )             5,110       (76 )                             5,034  
 
Severance tax refund
    4,468                               4,468                                       4,468  
 
Debt restructuring/ reorganization costs
                  (3,084 )             (3,084 )     (7,355 )     7,355                       (3,084 )
 
Minority interest
    (812 )                     2,886       2,074                                       2,074  
                                                             

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AMERICAN REAL ESTATE PARTNERS, L.P.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS — (Continued)
                                                                                   
                        Other Pro Forma Adjustments    
                             
            Panaco        
    Historical(1)       Intercompany        
            and        
    AREP   NEG   GB   Intercompany   Historical       Bankruptcy   Debt   Prior Debt    
    (Supplemental)(2)   Holding   Holdings   Adjustments   Combined   Panaco(1)   Adjustment(4)   Offering(5)   Offering(6)   Pro Forma
                                         
    (In thousands, except unit and per unit data)
 
Income (loss) from continuing operations before income taxes
    98,697       29,122       (11,836 )     (25,280 )     90,703       61,721       (54,046 )     (35,263 )     (12,285 )     50,830  
 
Income tax (expense) benefit
    (17,326 )             (986 )             (18,312 )     22,877                               4,565  
                                                             
 
Income (loss) from continuing operations
  $ 81,371     $ 29,122     $ (12,822 )   $ (25,280 )   $ 72,391     $ 84,598     $ (54,046 )   $ (35,263 )   $ (12,285 )   $ 55,395  
                                                             
Income from continuing operations attributable to:
                                                                               
 
Limited partners
  $ 71,456                                                                     $ 45,997  
 
General partner
    9,915                                                                       9,398  
                                                             
    $ 81,371                                                                     $ 55,395  
                                                             
Income from continuing operations per LP unit:
                                                                               
Basic earnings:
                                                                               
 
Income from continuing operations per LP unit
  $ 1.55                                                                     $ 0.74  
                                                             
 
Weighted average units outstanding
    46,098,284                                                                       62,167,250  
                                                             
Diluted earnings:
                                                                               
 
Income from continuing operations per LP unit
  $ 1.48                                                                     $ 0.74  
                                                             
 
Weighted average units and equivalent partnership units outstanding
    51,542,312                                                                       62,167,250  
                                                             

43


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AMERICAN REAL ESTATE PARTNERS, L.P.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
Year Ended December 31, 2003
                                           
    Historical(1)
     
    AREP   NEG       Intercompany   Historical
    (Supplemental)(2)   Holding   GB Holdings   Adjustments   Combined
                     
    (In $000’s)
Revenues:
                                       
 
Hotel and casino operating income
  $ 262,811     $       $ 167,749     $ (191 )   $ 430,369  
 
Land, house and condominium sales
    13,265                               13,265  
 
Interest income on financing leases
    13,115                               13,115  
 
Interest income on U.S. Government and Agency
                                     
 
obligations and other investments
    22,592       587       627       (115 )     23,691  
 
Rental income
    7,092                               7,092  
 
Hotel and resort operating income
    12,376                               12,376  
 
Accretion of investment in NEG Holding LLC
    30,142                       (30,142 )      
 
NEG management fee
    6,629                       (6,629 )      
 
Dividend and other income
    3,211       125                       3,336  
 
Equity in losses of equity method investees
    (3,466 )     (102 )             3,466       (102 )
 
Oil and gas operating income
    20,899       77,606                       98,505  
                               
      388,666       78,216       168,376       (33,611 )     601,647  
                               
Expenses:
                                       
 
Hotel and casino operating expenses
    216,857               156,556       (191 )     373,222  
 
Cost of land, house and condominium sales
    9,129                               9,129  
 
Hotel and resort operating expenses
    8,773                               8,773  
 
Interest expense
    27,057       1,538       12,581       (7,147 )     34,029  
 
Depreciation, depletion and amortization
    40,571       23,686       14,123               78,380  
 
General and administrative expenses
    14,081                               14,081  
 
Property expenses
    4,472                               4,472  
 
Oil and gas operating expenses
    5,028       23,080               (6,629 )     21,479  
 
Provision for loss on real estate
    750                               750  
                               
      326,718       48,304       183,260       (13,967 )     544,315  
                               
 
Operating income (loss)
    61,948       29,912       (14,884 )     (19,644 )     57,332  
Other gains and (losses):
                                       
 
Gain (loss) on sale of marketable equity and debt securities and other investments
    2,607       (954 )                     1,653  
 
Loss on sale of other assets
    (1,503 )             (28 )             (1,531 )
 
Write-down of equity securities available for sale
    (19,759 )                             (19,759 )
 
Gain on sale and disposition of real estate
    7,121                               7,121  
 
Debt restructuring/reorganization costs
                  (1,843 )             (1,843 )
 
Minority interest
    (1,266 )                     3,987       2,721  
                               
 
Income (loss) from continuing operations before income taxes
    49,148       28,958       (16,755 )     (15,657 )     45,694  
 
Income tax benefit (expense)
    16,750               (958 )             15,792  
                               
 
Income (loss) from continuing operations
  $ 65,898     $ 28,958     $ (17,713 )   $ (15,657 )   $ 61,486  
                               
Income from continuing operations attributable to:
                                       
 
Limited partners
  $ 48,573                             $ 44,249  
 
General partner
    17,325                               17,237  
                               
    $ 65,898                             $ 61,486  
                               
Income from continuing operations per LP unit:
                                       
Basic earnings:
                                       
 
Income from continuing operations per LP unit
  $ 1.00                             $ 0.72  
                               
 
Weighted average units outstanding
    46,098,284                               57,856,905  
                               
Diluted earnings:
                                       
 
Income from continuing operations per LP unit
  $ 0.94                             $ 0.70  
                               
 
Weighted average units and equivalent partnership units outstanding
    54,489,943                               66,248,564  
                               

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AMERICAN REAL ESTATE PARTNERS, L.P.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
Year Ended December 31, 2002
                                             
    Historical(1)
     
        Intercompany   Historical
    AREP   NEG Holding   GB Holdings   Adjustments   Combined
                     
    (In thousands)
Revenues:
                                       
 
Hotel and casino operating income
  $ 250,023     $       $ $189,917     $ (28 )     439,912  
 
Land, house and condominium sales
    76,024                               76,024  
 
Interest income on financing leases
    14,722                               14,722  
 
Interest income on U.S. Government and Agency obligations and other investments
    30,569       1,791       1,067       (546 )     32,881  
 
Rental income
    6,852                               6,852  
 
Hotel and resort operating income
    12,921                               12,921  
 
Accretion of investment in NEG Holding LLC
    32,879                       (32,879 )      
 
NEG management fee
    7,637                       (7,637 )      
 
Dividend and other income
    2,720       175                       2,895  
 
Equity in earnings of equity method investees
    305                       (305 )      
 
Oil and gas operating income
          35,901                       35,901  
                               
      434,652       37,867       190,984       (41,395 )     622,108  
                               
Expenses:
                                       
 
Hotel and casino operating expenses
    217,938               170,567       (28 )     388,477  
 
Cost of land, house and condominium sales
    54,640                               54,640  
 
Hotel and resort operating expenses
    10,536                               10,536  
 
Interest expense
    27,297       96       12,195       (7,578 )     32,010  
 
Depreciation, depletion and amortization
    23,646       15,509       13,292               52,447  
 
General and administrative expenses
    14,134                               14,134  
 
Property expenses
    3,862                               3,862  
 
Oil and gas operating expenses
          16,556               (7,637 )     8,919  
 
Provision for loss on real estate
    3,212                               3,212  
 
Loss on impairment of fixed assets
                  1,282               1,282  
                               
      355,265       32,161       197,336       (15,243 )     569,519  
                               
 
Operating income(loss)
    79,387       5,706       (6,352 )     (26,152 )     52,589  
Other gains and (losses):
                                       
 
Gain on sale of marketable equity and debt securities and other investments
          8,712                       8,712  
 
Loss on sale of other assets
    (353 )             (185 )             (538 )
 
Write-down of equity securities available for sale
    (8,476 )                             (8,476 )
 
Gain on sale and disposition of real estate
    8,990                               8,990  
 
Unrealized loss on financial instruments/short sale
          (347 )                     (347 )
 
Loss on limited partnership interests
    (3,750 )                             (3,750 )
 
Dividend expense
          (145 )                     (145 )
 
Minority interest
    (1,943 )                     1,648       (295 )
                               
 
Income(loss) from continuing operations before income taxes
    73,855       13,926       (6,537 )     (24,504 )     56,740  
 
Income tax expense
    (10,096 )             (784 )             (10,880 )
                               
 
Income(loss) from continuing operations
  $ 63,759     $ 13,926     $ (7,321 )   $ (24,504 )   $ 45,860  
                               
Income(loss) from continuing operations attributable to:
                                       
 
Limited partners
  $ 56,369                             $ 38,826  
 
General partner
    7,390                               7,034  
                               
    $ 63,759                             $ 45,860  
                               
Income(loss) from continuing operations per LP unit:
                                       
Basic earnings:
                                       
 
Income from continuing operations
  $ 1.12                             $ 0.59  
                               
 
Weighted average units outstanding
    46,098,284                               57,856,905  
                               
Diluted earnings:
                                       
   
Income(loss) from continuing operations per LP unit
  $ 1.00                             $ 0.57  
                               
 
Weighted average units and equivalent partnership units outstanding
    56,466,698                               68,225,319  
                               

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NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENT INFORMATION
(1) Gives effect to the following pending transactions:
      We have entered into purchase agreements with affiliates of Mr. Icahn to acquire the following:
  •  The membership interest in NEG Holding for 11,344,828 Depositary Units valued at $329.0 million.
 
  •  100% of the equity of Panaco for 4,310,345 Depositary Units valued at $125.0 million.
 
  •  Approximately 41.2% of the outstanding common stock of GB Holdings and approximately 11.3% of the fully diluted common stock of Atlantic Holdings for 413,793 Depositary Units valued at $12.0 million, plus 206,897 units valued at $6.0 million if certain earnings targets are met during 2005 and 2006.
      The Acquisitions will be accounted for as a combination of entities under common control and are recorded at the historical basis of the entities being acquired as of and for the periods for which the entities were under common control.
      Although Panaco emerged from bankruptcy on November 16, 2004, the six weeks of operations during this period were not material. For purposes of the pro forma financial statements, the acquisition of Panaco was considered effective as of December 31, 2004.
      None of the pending Acquisitions is conditioned upon the closing of the others. We may not complete all or any of the pending Acquisitions. For purposes of the pro forma presentations, we have assumed the closing of all pending Acquisitions.
      The intercompany adjustments reflect the elimination of intercompany amounts necessary to prepare consolidated financial statements. These adjustments are summarized as follows:
(a) Pro Forma Condensed Consolidated Balance Sheet at March 31, 2005
  •  The elimination of AREP’s $97.7 million investment in NEG Holding, since NEG Holding is now consolidated.
 
  •  The elimination of AREP’s $9.1 million equity interest in GB Holdings, since GB Holdings is now consolidated.
 
  •  The elimination of AREP’s $63.9 million investment in the Atlantic Holdings 3% Notes due 2008 or the Atlantic Holdings Notes, and the elimination of the corresponding debt of Atlantic Holdings.
 
  •  The elimination of $2.2 million of deferred consent fees for both AREP and GB Holdings related to AREP’s consent, in July 2004, to an exchange of GB Holdings 11% notes due 2005 for the Atlantic Holdings Notes.
 
  •  The elimination of AREP’s share of warrants in Atlantic Holdings, valued at $33.8 million. The warrants owned by AREP after the Acquisitions represent approximately 77.5% of the outstanding warrants. The remaining approximate 22.5% of the warrants in Atlantic Holdings, valued at $9.8 million, have been reclassified to minority interests.
 
  •  The recording of the minority interest in GB Holdings of $7.0 million.
 
  •  The elimination of AREP’s $36.6 million investment in the outstanding term loans of Panaco, Inc., or the Panaco Debt, plus accrued interest and the elimination of the corresponding debt of Panaco.
 
  •  The elimination of a $10.0 million receivable/payable between AREP and Panaco.
(b) Pro Forma Condensed Consolidated Statement of Earnings for the Three Months Ended March 31, 2005
  •  The elimination of AREP’s $9.9 million accretion of investment in NEG Holding, since NEG Holding is now consolidated.

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NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENT INFORMATION — (Continued)
  •  The elimination of AREP’s $1.0 million equity in losses of GB Holdings, since GB Holdings is now consolidated.
 
  •  The elimination of AREP’s $2.1 million management fee from NEG Holding, since NEG Holding is now consolidated.
 
  •  The elimination of a $0.1 million administrative charge between ACEP and GB Holdings.
 
  •  The elimination of $0.2 million of amortization of deferred consent fees between AREP and GB Holdings.
 
  •  The elimination of $0.5 million of related party interest expense paid by GB Holdings to Mr. Icahn and affiliates.
 
  •  The recording of a credit to minority interest expense on GB Holdings of $0.9 million.
 
  •  The elimination of $0.6 million of interest expense/income recorded by Panaco/ AREP on the term loans of Panaco.
(c) Pro Forma Condensed Consolidated Statement of Earnings for the Year Ended December 31, 2004
  •  The elimination of AREP’s $34.4 million accretion of investment in NEG Holding, since NEG Holding is now consolidated.
 
  •  The elimination of AREP’s $2.1 million equity in losses of GB Holdings, since GB Holdings is now consolidated.
 
  •  The elimination of AREP’s $6.2 million management fee from NEG Holding, since NEG Holding is now consolidated.
 
  •  The elimination of a $0.3 million administrative charge between ACEP and GB Holdings.
 
  •  The elimination of $0.3 million of amortization of deferred consent fees between AREP and GB Holdings.
 
  •  The elimination of $4.8 million of related party interest expense paid by GB Holdings to Mr. Icahn and affiliates.
 
  •  The recording of a credit to minority interest expense on GB Holdings of $2.9 million.
(d) Pro Forma Condensed Consolidated Statement of Earnings for the Year Ended December 31, 2003
  •  The elimination of AREP’s $30.1 million accretion of investment in NEG Holding, since NEG Holding is now consolidated.
 
  •  The elimination of AREP’s $3.5 million equity in losses of GB Holdings, since GB Holdings is now consolidated.
 
  •  The elimination of AREP’s $6.6 million management fee from NEG Holding, since NEG Holding is now consolidated.
 
  •  The elimination of a $0.2 million administrative charge between ACEP, a consolidated subsidiary of AREP and GB Holdings.
 
  •  The elimination of $0.1 million of interest income and expense between NEG Holding and NEG, Inc., a consolidated subsidiary of AREP.
 
  •  The elimination of $7.0 million of related party interest expense paid by GB Holdings to Mr. Icahn and affiliates.
 
  •  The recording of a credit to minority interest expense on GB Holdings of $4.0 million, representing 22.5% of the loss of GB Holdings.

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NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENT INFORMATION — (Continued)
(e) Pro Forma Condensed Consolidated Statement of Earnings for the Year Ended December 31, 2002
  •  The elimination of AREP’s $32.9 million accretion of investment in NEG Holding, since NEG Holding is now consolidated.
 
  •  The elimination of AREP’s $0.3 million equity in earnings of GB Holdings, since GB Holdings is now consolidated.
 
  •  The elimination of AREP’s $7.6 million management fee from NEG Holding, since NEG Holding is now consolidated.
 
  •  The elimination of $0.5 million of interest income and expense between NEG Holding and NEG.
 
  •  The elimination of $7.0 million of related party interest expense paid by GB Holdings to Mr. Icahn and affiliates.
 
  •  The recording of a debit to minority interest on GB Holdings of $2.9 million, representing 22.5% of the loss of GB Holdings.
(2) Gives effect to the following completed transaction:
      On April 6, 2005, we purchased from affiliates of Mr. Icahn 100% of the equity of TransTexas for $180.0 million in cash. The acquisition was accounted for as a combination of entities under common control and the supplemental consolidated financial statements for the three months ended March 31, 2005 and 2004 (unaudited) and the years ended December 31, 2004 and 2003 give effect to the inclusion of the results of TransTexas since August 28, 2003, the date it emerged from bankruptcy. The supplemental consolidated financial statements are included elsewhere in this prospectus.
(3) The pro forma intercompany adjustments also reflect the elimination of intercompany amounts necessary to prepare consolidated financial statements. These adjustments are summarized as follows:
Pro Forma Condensed Consolidated Balance Sheet at March 31, 2005
  •  The elimination of AREP’s $466 million pro forma investment in the Acquisitions.
 
  •  The allocation of the change in equity as a result of the transaction between the general partner and the limited partners.
(4) Reflects the following adjustments for Panaco:
  •  The reduction of interest expense and interest income that results from the effect of its bankruptcy.
 
  •  The elimination of related party interest expense following emergence from bankruptcy in November 2004.
 
  •  The elimination of $0.7 million management fee paid to AREP, following emergence from bankruptcy.
 
  •  The elimination of $51.3 million of gain on retirement/restructuring of debt, $12.5 million gain on restructuring of payables and $7.4 million debt restructuring/reorganization costs related to the emergence from bankruptcy.
(5) Reflects interest expense related to the issuance of $480.0 million of Senior Notes.
(6) Reflects interest expense and amortization of costs from the beginning of the period presented, (January 1), related to the issuance of notes from prior debt offerings. The prior debt offerings consisted of 7.85% senior secured notes due 2012 in the principal amount of $215.0 million, issued by American Casino & Entertainment Properties LLC and American Casino & Entertainment Properties Finance Corp in January 2004, and 81/8% senior notes due 2012 in the principal amount of $353.0 million issued by AREP and AREP Finance in May 2004.

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
      The following table summarizes certain selected historical consolidated financial data of AREP, which you should read in conjunction with its financial statements and the related notes contained in this prospectus and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” incorporated by reference from the Form 8-K filed on June 20, 2005. The selected historical consolidated financial data as of December 31, 2004 and 2003, and for the years ended December 31, 2004, 2003 and 2002, have each been derived from our audited consolidated financial statements at those dates and for those periods, contained elsewhere in this prospectus. The selected historical consolidated financial data as of December 31, 2002 and 2001 and for the year ended December 31, 2001 have each been derived from our audited consolidated financial statements at that date and for that period, not contained in this prospectus. The selected historical consolidated financial data as of and for the year ended December 31, 2000 has been derived from our consolidated financial statements (unaudited) at that date and for that period. The selected historical consolidated financial data as of March 31, 2005 and for the three months ended March 31, 2005 and 2004 are unaudited. For the three month periods ended March 31, 2005 and 2004, all adjustments, consisting only of normal recurring adjustments, which are, in our opinion, necessary for a fair presentation of the interim consolidated financial statements, have been included. Results for the three months ended March 31, 2005 and 2004 are not necessarily indicative of the results for the full year.
                                                           
    Three Months Ended    
    March 31,   Year Ended December 31,
         
    2005   2004   2004   2003   2002   2001   2000
                             
    (In $000’s, except per unit amounts)
Total revenues
  $ 130,623     $ 102,219     $ 452,012     $ 368,946     $ 434,652     $ 414,545     $ 378,179  
                                           
Operating income
  $ 25,670     $ 24,142     $ 88,837     $ 68,979     $ 79,387     $ 63,938     $ 66,356  
Other gains (losses):
                                                       
 
Gain on sale of marketable equity and debt securities
          28,857       40,159       2,607             6,749        
 
Unrealized gains (losses) on securities sold short
    21,704             (23,619 )                        
 
Impairment loss on equity interest in GB Holdings, Inc. 
                (15,600 )                        
 
(Loss) gain on sale of other assets
    (180 )     (4 )           (1,503 )     (353 )     27        
 
Gain on sales and disposition of real estate
    186       6,047       5,262       7,121       8,990       1,737       6,763  
 
Write-down of marketable equity and debt securities and other investments
                      (19,759 )     (8,476 )            
 
(Loss) gain on limited partnership interests
                            (3,750 )           3,461  
 
Minority interest
                            (1,943 )     (450 )     (2,747 )
                                           
Income from continuing operations before income taxes
    47,380       59,042       95,039       57,445       73,855       72,001       73,833  
Income tax (expense) benefit
    (7,650 )     (6,169 )     (16,763 )     1,573       (10,096 )     25,664       379  
                                           
Income from continuing operations
    39,730       52,873       78,276       59,018       63,759       97,655       74,212  
                                           
Discontinued operations:
                                                       
 
Income from discontinued operations
    957       3,218       7,500       7,653       6,937       7,944       6,260  
 
Gain on sales and disposition of real estate
    18,723       6,929       75,197       3,353                    
                                           
Total income from discontinued operations
    19,680       10,147       82,697       11,006       6,937       7,944       6,260  
                                           
Net earnings
  $ 59,410     $ 63,020     $ 160,973     $ 70,024     $ 70,696     $ 105,609     $ 80,472  
                                           
Net Earnings Attributable to:
                                                       
 
Limited partners
  $ 58,228     $ 57,608     $ 152,507     $ 59,360     $ 63,168     $ 66,190     $ 72,225  
 
General partner
    1,182       5,412       8,466       10,664       7,528       39,419       8,247  
                                           
Net earnings
  $ 59,410     $ 63,020     $ 160,973     $ 70,024     $ 70,696     $ 105,609     $ 80,472  
                                           

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    Three Months Ended    
    March 31,   Year Ended December 31,
         
    2005   2004   2004   2003   2002(1)   2001(1)   2000(1)
                             
    (In $000’s except per unit amounts)
Net earnings per limited partnership unit:
                                                       
 
Basic earnings:
                                                       
   
Income from continuing operations
  $ 0.84     $ 1.03     $ 1.55     $ 1.00     $ 1.12     $ 1.17     $ 1.35  
   
Income from discontinued operations
    0.42       0.22       1.76       0.24       0.15       0.17       0.13  
                                           
 
Basic earnings per LP Unit
  $ 1.26     $ 1.25     $ 3.31     $ 1.24     $ 1.27     $ 1.34     $ 1.48  
                                           
Weighted average limited partnership units outstanding
    46,098,284       46,098,284       46,098,284       46,098,284       46,098,284       46,098,284       46,098,284  
                                           
 
Diluted earnings:
                                                       
   
Income from continuing operations
  $ 0.81     $ 0.93     $ 1.48     $ 0.94     $ 1.00     $ 1.05     $ 1.18  
   
Income from discontinued operations
    0.39       0.19       1.57       0.19       0.12       0.14       0.11  
                                           
 
Diluted earnings per LP Unit
  $ 1.20     $ 1.12     $ 3.05     $ 1.13     $ 1.12     $ 1.19     $ 1.29  
                                           
Weighted average limited partnership units and equivalent partnership units outstanding
    49,857,622       52,499,303       51,542,312       54,489,943       56,466,698       55,599,112       56,157,079  
                                           
Other financial data:
                                                       
Capital expenditures (excluding property acquisitions)
  $ 4,781     $ 1,658     $ 16,221     $ 33,324     $ 21,896     $ 68,199     $ 52,598  
                                                 
        At December 31,
    At March 31,    
    2005   2004   2003   2002(1)   2001(1)   2000(1)
                         
    (In $000’s)
Balance Sheet Data:
                                               
Cash and cash equivalents
  $ 1,245,762     $ 762,708     $ 487,498     $ 79,540     $ 83,975     $ 172,621  
Hotel, casino and resort operating properties
    334,931       339,492       340,229       335,121       339,201       264,566  
Investment in U.S. Government and Agency obligations
    5,533       102,331       61,573       336,051       313,641       475,267  
Other investments
    244,602       245,948       50,328       54,216       10,529       4,289  
Total assets
    2,775,685       2,263,057       1,646,606       1,706,031       1,721,100       1,566,597  
Mortgages payable
    4,205       91,896       180,989       171,848       166,808       182,049  
Senior secured notes payable — 7.85%
    215,000       215,000                          
Senior unsecured notes payable — 8 1/8%
    830,679       350,598                          
Senior unsecured notes payable — 7 1/8%
    480,000                                
Liability for preferred limited partnership units(1)
    108,006       106,731       101,649                    
Partners’ equity
  $ 1,360,142     $ 1,303,126     $ 1,270,214     $ 1,245,437     $ 1,136,452     $ 1,154,400  
 
(1)  On July 1, 2003, we adopted Statement of Financial Accounting Standards No. 150 (SFAS 150), Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS 150 requires that a financial instrument, which is an unconditional obligation, be classified as a liability. Previous guidance required an entity to include in equity financial instruments that the entity could redeem in either cash or stock. Pursuant to SFAS 150, our preferred units, which are an unconditional obligation, have been reclassified from “Partners’ equity” to a liability account in the consolidated balance sheets and the preferred pay-in-kind distribution for the period from July 1, 2003 to December 31, 2003 of $2.4 million and all future distributions have been and will be recorded as “Interest expense” in the consolidated statements of earnings.

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SELECTED SUPPLEMENTAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
      The following table summarizes certain supplemental and unaudited pro forma consolidated financial data for AREP, to give effect to the acquisition of TransTexas accounted for in a manner similar to a pooling of interests, which you should read in conjunction with AREP’s supplemental financial statements and the related notes contained in this prospectus and “Management’s Discussion and Analysis of Supplemental Financial Condition and Results of Operations.” The selected historical supplemental consolidated financial data as of December 31, 2004 and 2003, and for the years ended December 31, 2004 and 2003, have each been derived from our audited supplemental consolidated financial statements at those dates and for those periods, contained elsewhere in this prospectus. The selected historical supplemental consolidated financial data as of March 31, 2005 and for the three months ended March 31, 2005 and 2004 have each been derived from our unaudited supplemental consolidated financial statements contained elsewhere in this prospectus. For the three months ended March 31, 2005 and 2004, all adjustments consisting only of normal recurring adjustments, which are, in our opinion, necessary for a fair presentation of the interim supplemental consolidated financial statements have been included. Results for the three months ended March 31, 2005 and 2004 are not necessarily indicative of the results for the full year. The selected unaudited pro forma consolidated financial data as of March 31, 2005 (unaudited) and December 31, 2004 and 2003 and for the three months ended March 31, 2005 (unaudited) and the years ended December 31, 2004, 2003 and 2002 should be read in conjunction with the unaudited pro forma consolidated financial data and related notes contained elsewhere in this prospectus.
                                                                   
    Three Months Ended March 31,   Year Ended December 31,
         
    2005   2004   2005   2004   2004   2003   2003   2002
                                 
    (Supplemental)   (Supplemental)   (Pro Forma)   (Supplemental)   (Pro Forma)   (Supplemental)   (Pro Forma)   (Pro Forma)
    (In $000’s, except per unit amounts)
Total revenues
  $ 144,226     $ 116,452     $ 210,874     $ 506,196     $ 768,079     $ 388,666     $ 601,647     $ 622,108  
                                                 
Operating income
  $ 27,290     $ 22,533     $ 24,854     $ 87,159     $ 39,718     $ 61,948     $ 57,332     $ 52,589  
Other gains (losses):
                                                               
 
Gain on sale of marketable equity and debt securities
          28,857             40,159       40,159       2,607       1,653       8,712  
 
Unrealized gains (losses) on securities sold short
    21,704             21,704       (23,619 )     (23,619 )                 (347 )
 
Change in fair market value of derivative contract
    (9,813 )           (38,769 )                              
 
Impairment loss on equity interest in GB Holdings, Inc. 
                      (15,600 )     (15,600 )                  
 
(Loss) gain on sale of other assets
    (180 )     (4 )     (180 )     1,680       1,680       (1,503 )     (1,531 )     (538 )
 
Gain on sales and disposition of real estate
    186       6,047       190       5,262       5,034       7,121       7,121       8,990  
 
Write-down of marketable equity and debt securities and other investments
                                  (19,759 )     (19,759 )     (8,476 )
 
Loss on limited partnership interests
                                              (3,750 )
 
Debt restructuring/ reorganization costs
                (24 )           (3,084 )           (1,843 )      
 
Severance tax refund
                      4,468       4,468                    
 
Dividend expense
                                              (145 )
 
Minority interest
          (39 )     932       (812 )     2,074       (1,266 )     2,721       (295 )
                                                 
Income from continuing operations before income taxes
    39,187       57,394       8,707       98,697       50,830       49,148       45,694       56,740  
Income tax (expense) benefit
    (4,782 )     (5,966 )     (3,405 )     (17,326 )     4,565       16,750       15,792       (10,880 )
                                                 
Income from continuing operations
  $ 34,405     $ 51,428     $ 5,302     $ 81,371     $ 55,395     $ 65,898     $ 61,486     $ 45,860  
                                                 

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    Three Months Ended March 31,   Year Ended December 31,
         
    2005   2004   2005   2004   2004   2003   2003   2002
                                 
    (Supplemental)   (Supplemental)   (Pro Forma)   (Supplemental)   (Pro Forma)   (Supplemental)   (Pro Forma)   (Pro Forma)
    (In $000’s, except per unit amounts)
 
Discontinued operations:
                                                               
   
Income from discontinued operations
    957       3,218               7,500               7,653                  
   
Gain on sales and disposition of real estate
    18,723       6,929               75,197               3,353                  
                                                 
Total income from discontinued operations
    19,680       10,147               82,697               11,006                  
                                                 
Net earnings
  $ 54,085     $ 61,575             $ 164,068             $ 76,904                  
                                                 
Net earnings attributable to:
                                                               
 
Limited partners
  $ 58,228     $ 57,608             $ 152,507             $ 59,360                  
 
General partner
    (4,143 )     3,967               11,561               17,544                  
                                                 
Net earnings
  $ 54,085     $ 61,575             $ 164,068             $ 76,904                  
                                                 
Net earnings per limited partnership unit:
                                                               
 
Basic earnings:
                                                               
   
Income from continuing operations
  $ 0.84     $ 1.03     $ 0.17     $ 1.55     $ 0.74     $ 1.00     $ 0.72     $ 0.59  
                                                 
   
Income from discontinued operations
    0.42       0.22               1.76               0.24                  
                                                 
   
Basic earnings per LP unit
  $ 1.26     $ 1.25             $ 3.31             $ 1.24                  
                                                 
Weighted average limited partnership units outstanding
    46,098,284       46,098,284       62,167,250       46,098,284       62,167,250       46,098,284       57,856,905       57,856,905  
                                                 
 
Diluted earnings:
                                                               
   
Income from continuing operations
  $ 0.81     $ 0.93     $ 0.17     $ 1.48     $ 0.74     $ 0.94     $ 0.70     $ 0.57  
                                                 
   
Income from discontinued operations
    0.39       0.19               1.57               0.19                  
                                                 
 
Diluted earnings per LP unit
  $ 1.20     $ 1.12             $ 3.05             $ 1.13                  
                                                 
Weighted average limited partnership units outstanding
    49,857,622       52,499,303       62,167,250       51,542,312       62,167,250       54,489,942       66,248,564       68,225,319  
                                                 
Other financial data:
                                                               
 
Capital expenditures (excluding property acquisitions)
  $ 25,852     $ 6,106             $ 63,749     $ 150,854     $ 33,957     $ 86,841     $ 60,776  
 
Book value per unit
                          $ 30.97     $ 23.76                          

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    At March 31,   At December 31,
         
    2005   2005 (Pro   2004   2004 (Pro   2003
    (Supplemental)   Forma)   (Supplemental)   Forma)   (Supplemental)
                     
    (In $000’s)
Balance Sheet Data:
                                       
 
Cash and cash equivalents
  $ 1,250,074     $ 1,105,723     $ 768,918     $ 1,097,810     $ 504,369  
 
Hotel, casino and resort operating properties
    334,931       503,168       339,492       511,132       340,229  
 
Oil and gas properties
    180,241       521,776       168,136       506,900       168,921  
 
Investment in U.S. Government and Agency Obligations
    74,427       74,427       102,331       102,331       61,573  
 
Other investments
    244,602       244,602       245,948       245,948       50,328  
 
Total assets
    2,935,697       3,215,728       2,408,189       3,179,167       1,831,573  
 
Mortgages payable
    80,191       80,191       91,896       91,896       180,989  
 
Senior secured note payable 7.85% due 2012
    215,000       215,000       215,000       215,000        
 
Senior unsecured notes payable 81/8% due 2012
    350,679       350,679       350,598       830,598        
 
Senior unsecured notes payable 71/8% due 2013
    480,000       480,000                    
 
Liability for preferred limited partnership units
    108,006       108,006       106,731       106,731       101,649  
 
Partner’s equity
    1,479,125       1,505,122       1,427,435       1,477,355       1,393,347  
 
Capital Expenditures:
                                       
 
As reported
  $ 25,852       N/A     $ 63,750     $ 63,750     $ 33,957  
 
Panaco
    N/A       N/A       1,994       N/A       N/A  
 
GB Holdings, Inc. 
    N/A       N/A       17,378       N/A       N/A  
 
NEG Holding
    N/A       N/A       67,732       N/A       N/A  
                               
    $ 25,852       N/A     $ 63,750     $ 150,854     $ 33,957  
                               

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
SUPPLEMENTAL FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
      We are a diversified holding company engaged in a variety of businesses. Our primary business strategy is to continue to grow our core businesses, including real estate, gaming and entertainment, and oil and gas. In addition, we seek to acquire undervalued assets and companies that are distressed or in out of favor industries.
      Our businesses currently include rental real estate; real estate development; hotel and resort operations; hotel and casino operations; oil and gas exploration and production; and investments in equity and debt securities. We may also seek opportunities in other sectors, including energy, industrial manufacturing, insurance and asset management.
      In continuation of our strategy to grow our core businesses, we have recently acquired, and have entered into agreements to acquire, additional gaming and entertainment and oil and gas assets from affiliates of Mr. Icahn.
      To capitalize on favorable real estate market conditions and the mature nature of our commercial real estate portfolio, we have offered our rental real estate portfolio for sale. During the year ended December 31, 2004, we sold 57 rental real estate properties for approximately $245.4 million. These properties were encumbered by mortgage debt of approximately $93.8 million that we repaid from the sale proceeds. As of December 31, 2004, we owned 71 rental real estate properties with a book value of approximately $196.3 million, individually encumbered by mortgage debt which aggregated approximately $91.9 million. As of December 31, 2004, we had entered into conditional sales contracts or letters of intent for 15 rental real estate properties. Selling prices for the properties covered by the contracts or letters of intent would total approximately $97.9 million. These properties are encumbered by mortgage debt of approximately $36.0 million. Because of the conditional nature of sales contracts and letters of intent, we cannot be certain that these properties will be sold. We continue to seek purchasers for our remaining rental real estate portfolio. We cannot be certain that we will receive offers satisfactory to us or, if we receive offers, any of the properties will ultimately be sold at prices acceptable to us. In the three months ended March 31, 2005, we sold four rental real estate properties and a golf resort for approximately $51.9 million which were encumbered by mortgage debt of approximately $10.7 million that was repaid from the sale proceeds.
      Of the five properties, we sold one financing lease property for approximately $8.4 million encumbered by mortgage debt of approximately $3.8 million. The carrying value of this property was approximately $8.2 million; therefore, we recognized a gain on sale of approximately $0.2 million in the three months ended March 31, 2005, which is included in income from continuing operations. We sold four operating properties for approximately $43.5 million encumbered by mortgage debt of approximately $6.9 million. The carrying value of these properties was approximately $24.8 million. We recognized a gain on sale of approximately $18.7 million in the three months ended March 31, 2005, which is included in income from discontinued operations.
      At March 31, 2005, we had 11 properties under contract or as to which letters of intent had been executed by potential purchasers, all of which contracts or letters of intent are subject to purchaser’s due diligence and other closing conditions. Selling prices for the properties covered by the contracts or letters of intent would total approximately $45.5 million. These properties are encumbered by mortgage debt of approximately $25.3 million. At March 31, 2005, the carrying value of these properties is approximately $29.1 million. In accordance with generally accepted accounting principles, or GAAP, only the real estate operating properties under contract or letter of intent, but not the financing lease properties, were reclassified to “Properties Held for Sale” and the related income and expense reclassified to “Income from Discontinued Operations.”
      Historically, substantially all of our real estate assets leased to others have been net-leased to single corporate tenants under long-term leases. With certain exceptions, these tenants are required to pay all expenses relating to the leased property and therefore we are not typically responsible for payment of expenses, such as maintenance, utilities, taxes and insurance associated with such properties.

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      Expenses relating to environmental clean-up related to our development and rental real estate operations have not had a material effect on our earnings, capital expenditures or competitive position. We believe that substantially all such costs would be the responsibility of the tenants pursuant to lease terms. While most tenants have assumed responsibility for the environmental conditions existing on their leased property, there can be no assurance that we will not be deemed to be a responsible party or that the tenant will bear the costs of remediation. Also, as we acquire more operating properties, our exposure to environmental clean-up costs may increase. We have completed Phase I environmental site assessments on most of our properties through third-party consultants. Based on the results of these Phase I environmental site assessments, the environmental consultant has recommended that certain sites may have environmental conditions that should be further reviewed. We have notified each of the responsible tenants to attempt to ensure that they cause any required investigation and/or remediation to be performed and most tenants continue to take appropriate action. However, if the tenants fail to perform responsibilities under their leases referred to above, we could potentially be liable for these costs. Based on the limited number of Phase II environmental site assessments that have been conducted by the consultants, there can be no accurate estimate of the need for or extent of any required remediation, or the costs thereof. Phase I environmental site assessments will also be performed in connection with new acquisitions and with such property refinancings as we may deem necessary and appropriate. We are in the process of updating our Phase I environmental site assessments for certain of our environmentally sensitive properties. Approximately 75 updates were completed in 2003. No additional material environmental conditions were discovered. Although we conducted environmental investigations in 2004 for newly acquired properties and no environmental concerns were disclosed by such investigations, we did not conduct any updates to the Phase I environmental site assessments for our remaining portfolio in 2004.
      We have made investments in the gaming industry through our ownership of Stratosphere Casino Hotel & Tower in Las Vegas, Nevada and through our purchase of securities of the entity which owns The Sands Hotel and Casino in Atlantic City, New Jersey. One of our subsidiaries, formed for this purpose, entered into an agreement in January 2004 to acquire two Las Vegas hotels and casinos, Arizona Charlie’s Decatur and Arizona Charlie’s Boulder, from Mr. Icahn and an entity affiliated with Mr. Icahn, for aggregate consideration of $125.9 million. Upon obtaining all approvals necessary under gaming laws, the acquisition was completed in May 2004. We have entered into an agreement with affiliates of Mr. Icahn pursuant to which we will acquire approximately 41.2% of the outstanding common stock of GB Holdings and approximately 11.3% of the fully diluted common stock of Atlantic Holdings, the indirect owner of The Sands Hotel and Casino. We are considering additional gaming industry investments. These investments may include acquisitions from, or be made in conjunction with, our affiliates, provided that the terms thereof are fair and reasonable to us.
      We have entered into agreements with affiliates of Mr. Icahn to purchase the other membership interest in NEG Holding and 100% of the equity of Panaco, an oil and gas exploration and production company. On April 6, 2005, we completed the purchase of TransTexas for $180.0 million of cash. NEG Operating, TransTexas and Panaco are affected by extensive regulation through various federal, state and local laws and regulations relating to the exploration for and development, production, gathering and marketing of oil and gas. NEG Operating, TransTexas and Panaco are also subject to numerous environmental laws, including but not limited to, those governing management of waste, protection of water, air quality, the discharge of materials into the environment, and preservation of natural resources. Non-compliance with environmental laws and the discharge of oil, natural gas, or other materials into the air, soil or water may give rise to liabilities to the government and third parties, including civil and criminal penalties, and may require us to incur costs to remedy the discharge. Laws and regulations protecting the environment have become more stringent in recent years, and may in certain circumstances impose retroactive, strict, and joint and several liabilities rendering entities liable for environmental damage without regard to negligence or fault. We cannot assure you that new laws and regulations, or modifications of or new interpretations of existing laws and regulations, will not substantially increase the cost of compliance or otherwise adversely affect our oil and gas operations and financial condition or that material indemnity claims will not arise with respect to properties that we acquire. While we do not anticipate incurring material costs in connection with environmental compliance and remediation, we cannot guarantee that material costs will not be incurred.
      In accordance with generally accepted accounting principles, or GAAP, assets transferred between entities under common control are accounted for at historical costs similar to a pooling of interests and the

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financial statements of previously separate companies for periods prior to the acquisition are (and, in the case of the pending acquisitions, following the closing of the acquisitions, will be) restated on a combined basis.
Supplemental Results of Operations
Three Months Ended March 31, 2005 Compared to Three Months Ended March 31, 2004
      Gross revenues increased by $27.8 million, or 23.9%, during the three months ended March 31, 2005 as compared to the same period in 2004. This increase reflects increases of $8.0 million in interest income on U.S. government and agency obligations and other investments, $7.9 million in hotel and casino operating income, $4.2 million in hotel and resort operating income, $3.4 million in dividend and other income, $3.3 million in land, house and condominium sales, $2.0 million in accretion of investment in NEG Holding LLC and $0.6 million in NEG management fees, partially offset by decreases of $1.0 million in interest income on financing leases and $0.6 million in equity in earnings of GB Holdings. The increase in interest income on U.S. government and agency obligations and other investments is primarily due to increased interest income from the senior debt proceeds, increased interest income from other investment and increased interest income on debt securities of affiliates. The increase in hotel and casino operating income is primarily due to an increase in casino, hotel and food and beverage revenues. Hotel and resort operating income increased primarily due to the acquisition of the Grand Harbor development. The increase in land, house and condominium sales is primarily due to an increase in the number of units sold.
      Expenses increased by $23.0 million, or 24.5%, during the three months ended March 31, 2005 as compared to the same period in 2004. This increase reflects increases of $12.1 million in interest expense, $4.0 million in hotel and resorts operating expenses, $3.7 million in the cost of land, house and condominium sales, $3.4 million in hotel and casino operating expenses, and $3.2 million in general and administrative expenses partially offset by decreases of $2.2 million in depreciation and amortization and $0.1 million in property expenses. The increase in interest expense is primarily attributable to interest on the senior notes issued by us in May 2004 and February 2005, respectively. The increase in hotel and resort operating expenses is primarily due to the Grand Harbor acquisition. The increase in costs of land, house and condominium sales is due to increased sales as noted above. The increase in hotel and casino operating expenses is primarily attributable to increased costs associated with increased revenues. The increase in general and administrative expenses is primarily attributable to expenses incurred by NEG in connection with the increase in NEG management fees, legal fees, the addition of Grand Harbor and state and local franchise taxes in connection with the 2004 property sales.
      Operating income increased during the three months ended March 31, 2005 by $4.8 million compared to the same period in 2004 as detailed above.
      Earnings from land, house and condominium operations decreased by $0.4 million in the three months ended March 31, 2005 compared to the same period in 2004 due to a decrease in margins on units sold.
      Earnings from hotel and casino operating properties increased by $4.4 million during the three months ended March 31, 2005 due to increased revenues throughout the properties.
      A gain on property transactions from continuing operations of $0.2 million was recorded in the three months ended March 31, 2005 as compared to $6.0 million in the same period in 2004.
      Other losses of $0.2 million were recorded in the three months ended March 31, 2005. There were no significant other losses in 2004.
      A gain on sale of marketable equity securities of $28.9 million was recorded in the three months ended March 31, 2004. There were no such gains in the comparable period of 2005.
      Unrealized gains on securities sold short of $21.7 million were recorded in the three months ended March 31, 2005. There were no such gains in 2004.
      Income from continuing operations before income taxes decreased by $18.2 million in the three months ended March 31, 2005 as compared to the same period in 2004 as detailed above.

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      Income tax expense of $4.8 million was recorded in the three months ended March 31, 2005 as compared to $6.0 million in the same period in 2004. Income tax expense was recorded by our corporate subsidiaries, NEG, TransTexas and American Casino.
      Income from continuing operations decreased by $17.0 million in the three months ended March 31, 2005 as compared to the same period in 2004 as detailed above.
      Income from discontinued operations increased by $9.5 million in the three months ended March 31, 2005, as compared to the same period in 2004 due to gains on property dispositions.
      Net earnings for the three months ended March 31, 2005 decreased by $7.5 million as compared to the three months ended March 31, 2004, primarily due to decreased gain on sales of real estate from continuing operations ($5.9 million) and decreased gain on sale of marketable equity securities ($28.9 million), partially offset by unrealized gains on securities sold short ($21.7 million) and in the 2005 period increased income from discontinued operations ($9.5 million).
Calendar Year 2004 Compared to Calendar Year 2003
      Gross revenues increased by $117.5 million, or 30.2%, during 2004 as compared to 2003. This increase reflects increases of $37.5 million in oil and gas operating revenues, $37.1 million in hotel and casino operating revenues, $21.8 million in interest income on U.S. government and agency obligations and other investments, $13.3 million in land, house and condominium sales, $4.3 million in accretion of investment in NEG Holding LLC, $3.8 million in hotel and resort operating income, $0.3 million in NEG management fees, $1.4 million in equity in earnings of GB Holdings, $0.8 million in rental income, and $0.4 million in dividend and other income. These increases were partially offset by a decrease of $3.2 million in interest income on financing leases. The increase in oil and gas operating income was due to a full year of income for TransTexas compared to four months in 2003. The increase in hotel and casino operating income is primarily due to an increase in casino, hotel, and food and beverage revenues. The increase in interest income on U.S. government and agency obligations and other investments is primarily due to the repayment of two mezzanine loans, on which interest was accruing, and increased interest income from other investments. The increase in land, house and condominium sales is primarily due to sales of higher priced units. The increase in NEG management fees is primarily due to management fees received from Panaco. NEG entered into a management agreement with Panaco in November 2004. The decrease in interest income on financing leases is primarily due to property sales and reclassifications.
      Expenses increased by $92.3 million, or 28.3%, during 2004, as compared to 2003. This increase reflects increases of $22.6 million in interest expense, $10.7 million in hotel and casino operating expenses, $9.4 million in cost of land, house and condominium sales, $8.8 million in oil and gas operating expenses, $6.9 million in general and administrative expenses, $27.7 million in depreciation, depletion and amortization, $4.0 million in hotel and resort operating expenses and $2.4 million in provision for loss on real estate. These increases were partially offset by a decrease of $0.2 million in property expenses. The increase in interest expense is primarily attributable to interest on the $215 million principal amount of 7.85% senior secured notes issued by American Casino, the $353 million principal amount of 81/8% senior notes issued by us in May 2004 and interest expense pertaining to preferred limited partnership pay-in-kind distribution. The increase in hotel and casino operating expenses is primarily attributable to increased costs associated with increased revenues. The increase in the land, house and condominium expenses is primarily attributable to increased sales as discussed above. The increase in oil and gas operating expenses of $8.8 million was due to a full year of expenses in 2004 compared to four months in 2003. The increase in general and administrative expenses is primarily attributable to expenses incurred in connection with the increase in NEG management fees and as a result of the Grand Harbor acquisition in July 2004. The increase in depreciation, depletion and amortization is primarily due to increased depreciation and amortization with respect to American Casino and a full year of depletion with respect to TransTexas compared to four months in 2003.
      Operating income increased during 2004 by $25.3 million, or 40.9%, to $87.2 million from $61.9 million in 2003, as detailed above.
      Earnings from land, house and condominium operations increased by $4.0 million or 96.0% to $8.1 million in 2004 due to sales of higher priced units. Based on current information, sales are expected to

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decrease in early 2005. However, we currently expect that the effects of the acquisition of Grand Harbor, completed in July 2004, and the approval in March 2004 of a 35 unit sub-division in Westchester County, New York, should provide increased earnings from these operations in the second half of 2005.
      Earnings from hotel and casino operating properties increased by $26.4 million, or 57.4%, to $72.4 million during 2004 due to increased revenues at each of our three properties.
      Earnings from oil and gas operating properties increased by $28.7 million, or 180.5% to $44.6 million.
      Gains on sales of property transactions and other assets from continuing operations increased by $1.3 million or 23.2%, to $6.9 million, in 2004.
      A gain on sale of marketable debt securities of $40.2 million was recorded in 2004, as compared to a gain of $2.6 million in 2003.
      A write-down of marketable equity and debt securities and other investments of $19.8 million was recorded in 2003. There was no such write-down in 2004.
      Unrealized losses on securities sold short of $23.6 million was recorded in 2004. There were no such losses in 2003. At March 1, 2005, the $23.6 million of unrealized losses has been reversed and a net gain of $3 million recorded.
      An impairment loss on equity interest in GB Holdings, Inc. of $15.6 million was recorded in 2004. The impairment reflects the price, $12 million, subject to increases up to $6 million based upon Atlantic Holdings meeting earnings targets in 2005 and 2006, used in the agreement to purchase, from an affiliate of Mr. Icahn, shares of GB Holdings common stock representing approximately 41.2% of the outstanding GB Holdings common stock. The purchase price pursuant to the agreement was less than our carrying value, approximately $26.2 million, for the approximately 36.3% of the outstanding GB Holdings common stock that we own. There was no such loss in 2003.
      A severance tax refund of $4.5 million was received in 2004. No such refund was received in 2003.
      Minority interest in the net earnings of TransTexas was $0.8 million in 2004 as compared to $1.3 million during 2003.
      Income from continuing operations before income taxes increased by $49.5 million in 2004 as compared to 2003, as detailed above.
      Income tax expense of $17.3 million was recorded in 2004 as compared to a $16.8 million income tax benefit in 2003 due to a reduction in the tax valuation allowance in 2003. Income tax expense was recorded by our corporate subsidiaries NEG, TransTexas and American Casino.
      Income from continuing operations increased by $15.5 million, or 23.5%, to $81.4 million in 2004.
      Income from discontinued operations increased by $71.7 million to $82.7 million in 2004. This reflects our decision to capitalize on favorable real estate markets and the mature nature of our commercial real estate portfolio, which resulted in gains on property dispositions.
      Net earnings for 2004 increased by $87.2 million, or 113.3%, to $164.1 million. This primarily was attributable to increased income from discontinued operations ($71.7 million), increased gain on marketable debt securities ($37.6 million), increased net oil and gas operating income ($28.7 million), increased net hotel and casino operating income ($26.4 million) and increased interest income ($21.8 million). These gains were partially offset by increased depreciation, depletion and amortization ($27.7 million) increased interest expense ($22.6 million), increase in unrealized losses on securities sold short ($23.6 million), increased income tax expense ($34.1 million) and impairment loss on equity interest in GB Holdings, Inc. ($15.6 million). Net earnings in 2003 also was affected by a write down of other investments of $19.8 million.
      Upon completion of the acquisitions described in Note 29 of the consolidated financial statements, we will consolidate the financial statements of NEG Holding, Panaco, and GB Holdings. Certain intercompany transactions will be eliminated. As a result, certain intercompany transactions will be eliminated, including, along others, the equity interest in GB Holdings for which we recorded an impairment loss in 2004, and NEG management fees.

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Calendar Year 2003 Compared to Calendar Year 2002
      Gross revenues decreased by $46.0 million, or 10.6%, during 2003 as compared to 2002. This decrease reflects decreases of (1) $62.8 million in land, house and condominium sales, (2) $8.0 million in interest income on U.S. government and agency obligations and other investments, (3) $3.8 million in equity in earnings of GB Holdings, Inc., (4) $2.7 million in accretion of investment in NEG Holding, (5) $1.6 million in financing lease income, (6) $1.0 million in NEG management fee and (7) $0.5 million in hotel and resort operating income, partially offset by increases of $20.9 million in oil and gas operating income, $12.8 million in hotel and casino operating income, $0.2 million in rental income, $0.5 million in dividend and other income. The decrease in land, house and condominium sales is primarily due to a decrease in the number of units sold, as the Grassy Hollow, Gracewood and Stone Ridge properties were depleted by sales. During 2003, Hammond Ridge received necessary approvals and, along with Penwood, have commenced lot sales. The decrease in interest income on U.S. government and agency obligations and other investments is primarily attributable to the prepayment of a loan to Mr. Icahn in 2003 and a decline in interest rates on U.S. Government and Agency obligations as higher rate bonds were called in 2002. The decrease in equity in earnings of GB Holdings, Inc. is due to decreased casino revenue primarily attributable to a reduction in the number of table games as new slot machines were added in 2002. This business strategy had a negative effect on casino operations and was changed in 2003 to focus on the mid to high-end slot customer with a balanced table game business. The decrease in accretion of investment in NEG Holding is primarily attributable to priority distributions received from NEG Holding in 2003. The decrease in financing lease income is the result of lease expirations, reclassifications of financing leases and normal financing lease amortization. The decrease in NEG management fee was due to a decrease in costs associated with NEG. The decrease in rental income is primarily attributable to property dispositions. The increase in hotel and casino operating income is primarily attributable to an increase in hotel, food and beverage revenues and a decrease in promotional allowances. The average daily room rate, or ADR, at the Stratosphere increased $3 to $51 and percentage occupancy increased approximately 0.2% to 89.8%. The ADR at Arizona Charlie’s Decatur decreased $1 to $43 and percentage occupancy increased 10.9% to 85.3%. The ADR at Arizona Charlie’s Boulder increased less than $1 to $43 and percentage occupancy increased 0.5% to 55.7%.
      Expenses decreased by $28.5 million, or 8.0%, during 2003 as compared to 2002. This decrease reflects decreases of $45.5 million in the cost of land, house and condominium sales, $1.8 million in hotel and resort operating expenses, $1.1 million in hotel and casino operating expenses and $2.5 million in provision for loss on real estate, partially offset by increases of $5.0 million in oil and gas operating expenses, $0.6 million in rental property expenses and $16.9 million in depreciation, depletion and amortization. The decrease in the cost of land, house and condominium sales is due to decreased sales. Costs as a percentage of sales decreased from 72% in 2002 to 69% in 2003. The decrease in hotel and resort operating expenses is due to a decrease in payroll and related expenses. The decrease in hotel and casino operating expenses is primarily attributable to a decrease in selling, general and administrative expenses. Costs as a percentage of sales decreased from 87% in 2002 to 83% in 2003. A provision for loss on real estate of $0.8 million was recorded in 2003 as compared to $3.2 million in 2002. In 2002, there were more properties vacated due to tenant bankruptcies than in 2003. The increase in oil and gas operating expenses was due to no activity during 2002. The increase in depreciation, depletion and amortization was due to the inclusion of TransTexas in our operating results for four months in 2003.
      Operating income decreased during 2003 by $17.4 million compared to 2002 as detailed above.
      Earnings from land, house and condominium operations decreased significantly in 2003 compared to 2002 due to a decline in inventory of completed units available for sale. Based on current information, sales will increase moderately during 2004. However, municipal approval of land inventory or the purchase of approved land is required to continue this upward trend into 2005 and beyond.
      Earnings from hotel, casino and resort properties could be constrained by recessionary pressures, international tensions and competition.
      Earnings from oil and gas operations were $45.4 million in 2003 as compared to $33.4 million in 2002. The increase was due to the inclusion of TransTexas in our operating results in 2003.

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      Gain on property transactions from continuing operations decreased by $1.9 million during 2003 as compared to 2002 due to the size and number of transactions.
      A loss on sale of other assets of $1.5 million was recorded in 2003 as compared to $0.4 million loss in 2002.
      A write-down of marketable equity and debt securities and other investments of $19.8 million, pertaining to our investment in the Philip notes, was recorded in 2003 as compared to a write-down of $8.5 million in 2002. These write downs relate to our investment in Philip Services Corp., which filed for bankruptcy protection in June 2003.
      A write-down of a limited partnership investment of $3.8 million was recorded in 2002. There was no such write-down in 2003.
      A gain on sale of marketable equity securities of $2.6 million was recorded in 2003. There was no such gain in 2002.
      Minority interest in the net earnings of Stratosphere Corporation was $1.9 million during 2002. As a result of the acquisition of the minority interest in December 2002, there was no minority interest in Stratosphere in 2003 or thereafter. Minority interest in the net earnings of TransTexas was $1.3 million during 2003.
      Income from continuing operations before income taxes decreased by $24.7 million in 2003 as compared to 2002, as detailed above.
      An income tax benefit of $16.8 million was recorded in 2003 as compared to an expense of $10.1 million in 2002. The effective tax rate on earnings of taxable subsidiaries was positively affected in 2003 by a reduction in the valuation allowance in deferred tax assets. We expect our effective tax rate on earnings of taxable subsidiaries to increase significantly in 2004.
      Income from continuing operations increased by $2.1 million in 2003 as compared to 2002, as detailed above.
      Income from discontinued operations increased by $4.1 million in 2003 as compared to 2002, primarily due to gains on property dispositions.
      Net earnings for 2003 increased by $6.2 million as compared to 2002 primarily due to oil and gas net operating income of $15.9 million in 2003, decreased income tax expense of $26.8 million, decreased write-down of limited partnership interests of $3.8 million, increased earnings from hotel and casino operations of $13.9 million, increased gain on the sale of marketable equity securities of $2.6 million and an increase in income from discontinued operations of $4.1 million which was partially offset by an increase in depreciation, depletion and amortization of $16.9 million, an increase in the write-down of marketable equity and debt securities and other investments of $11.3 million, decreased earnings from land, house and condominium operations of $17.2 million, decreased interest income of $8.0 million and decreased equity in earnings of GB Holdings of $3.8 million.
Liquidity and Capital Resources
March 31, 2005 and 2004
      Net cash provided by operating activities was $37.0 million for the three months ended March 31, 2005 as compared to $39.3 million in the comparable period of 2004. This decrease was primarily due to an increase in restricted cash ($8.7 million), an increase in due from brokers ($2.5 million), a decrease in accounts payable and accrued expenses ($11.6 million) and a decrease in discontinued operations ($2.4 million), partially offset by an increase in cash flow from other operations ($0.1 million), a decrease in receivables and other assets ($14.1 million), a decrease in land and construction-in-progress ($6.4 million), and an increase in deferred income tax expense ($2.3 million).
      Net cash provided by operating activities was $98.0 million for 2004 as compared to $32.9 million for 2003. This increase of $65.1 million was primarily due to an increase in oil and gas operations ($28.7 million) and hotel and casino operations ($26.4 million), an increase in interest income ($21.8 million), repayment of accounts payable and accrued expenses in 2003 and increased accounts payable and accrued expenses in 2004

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($134.6 million) and an increase in cash flow from other operations ($10.0 million), partially offset by an increase in interest expense ($22.6 million), an increase in due from brokers ($123.0 million) and an increase in receivables and other assets ($14.2 million).
      The following table reflects, at March 31, 2005, our contractual cash obligations, subject to certain conditions, due over the indicated periods and when they come due (in $millions):
                                           
    Less Than           After    
    1 Year   1-3 Years   3-5 Years   5 Years   Total
                     
Mortgages payable
  $ 4.2     $ 8.9     $ 29.3     $ 37.8     $ 80.2  
Acquisition of TransTexas
    180.0                         180.0  
Senior secured notes payable
                      215.0       215.0  
Senior unsecured notes payable
                      833.0       833.0  
Senior debt interest
    78.3       159.5       159.5       211.3       608.6  
Construction and development obligations
    44.5       15.8                   60.3  
                               
 
Total
  $ 307.0     $ 184.2     $ 188.8     $ 1,297.1     $ 1,977.1  
                               
Mortgages
      During the three months ended March 31, 2005 and 2004, approximately $1.0 million and $1.7 million of mortgage principal amounts were repaid. During the years ended December 31, 2004 and 2003, approximately $5.2 million and $6.5 million, respectively, of mortgage principal were repaid. These amounts do not include mortgage debt repaid in connection with sales of real estate. In 2004, mortgage financing proceeds were $10.0 million on commercial condo units located New York City. In May 2003, we obtained mortgage financing in the principal amount of $20.0 million on a distribution facility located in Windsor Locks, Connecticut. We intend to use asset sale, financing and refinancing proceeds for new investments.
Long-Term Debt
      In January 2004, ACEP issued senior secured notes due 2012. The notes, in the aggregate principal amount of $215.0 million, bear interest at the rate of 7.85% per annum. ACEP used the proceeds of the offering for the Arizona Charlie’s acquisitions, to repay intercompany indebtedness and for distributions to AREH. ACEP also has a $20.0 million credit facility. The restrictions imposed by ACEP’s senior secured notes and the credit facility likely will preclude our receiving payments from the operations of our principal hotel and gaming properties. ACEP accounted for 67% of our revenues and 34% of our operating income in 2004.
      ACEP’s 7.85% senior secured notes due 2012 restrict the payment of cash dividends or distributions by ACEP, the purchase of its equity interests, the purchase, redemption, defeasance or acquisition of debt subordinated to ACEP’s notes and investments as “restricted payments.” ACEP’s notes also prohibit the incurrence of debt, or the issuance of disqualified or preferred stock, as defined, by ACEP, with certain exceptions, provided that ACEP may incur debt or issue disqualified stock if, immediately after such incurrence or issuance, the ratio of consolidated cash flow to fixed charges (each as defined) for the most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional indebtedness is incurred or disqualified stock or preferred stock is issued would have been at least 2.0 to 1.0, determined on a pro forma basis giving effect to the debt incurrence or issuance. As of March 31, 2005, this ratio was 1.1 to 1.0. The ACEP notes also restrict the creation of liens, the sale of assets, mergers, consolidations or sales of substantially all of its assets, the lease or grant of a license, concession, other agreements to occupy, manage or use our assets, the issuance of capital stock of restricted subsidiaries and certain related party transactions. The ACEP notes allow ACEP to incur indebtedness, among other things, of up to $50 million under credit facilities, non-recourse financing of up to $15 million to finance the construction, purchase or lease of personal or real property used in its business, permitted affiliate subordinated indebtedness (as defined), the issuance of additional 7.85% senior secured notes due 2012 in an aggregate principal amount not to exceed 2.0 times net cash proceeds received from equity offerings and permitted affiliate subordinated debt, and additional indebtedness of up to $10.0 million.

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      Additionally, ACEP’s senior secured revolving credit facility allows for borrowings of up to $20.0 million, including the issuance of letters of credit of up to $10.0 million. Loans made under the senior secured revolving facility will mature and the commitments under them will terminate in January 2008. At March 31, 2005, there were not any borrowings or letters of credit outstanding under the facility. The facility contains restrictive covenants similar to those contained in the 7.85% senior secured notes due 2012. In addition, the facility requires that, as of the last date of each fiscal quarter, ACEP’s ratio of net property, plant and equipment for key properties, as defined, to consolidated first lien debt be not less than 5.0 to 1.0 and ACEP’s ratio of consolidated first lien debt to consolidated cash flow not be more than 1.0 to 1.0. At March 31, 2005, these ratios were 86.3 to 1.0 and 0.0 to 1.0, respectively.
      On May 12, 2004, we and AREP Finance issued senior notes due 2012. The notes, in the aggregate principal amount of $353.0 million, and priced at 99.266% of principal amount, bear interest at a rate of 81/8% per annum. The notes are guaranteed by AREH. Net proceeds from the offering have been and will continue to be used for general business purposes, including to pursue our primary business strategy of acquiring undervalued assets in either our existing lines of business or other businesses and to provide additional capital to grow our existing businesses.
      On February 7, 2005, we and AREP Finance issued senior notes due 2013. The notes, in the aggregate principal amount of $480 million, bear interest at a rate of 71/8% per annum. The notes are guaranteed by AREH. Net proceeds from the offering have been used to fund the acquisition of TransTexas and to pay related fees and expenses, and will be used for general business purposes.
      Our 81/8% senior notes due 2012 and 71/8% notes due 2013 restrict the payment of cash dividends or distributions, the purchase of equity interests or the purchase, redemption, defeasance or acquisition of debt subordinated to the 81/8% senior notes due 2012 and 71/8% notes due 2013. The notes also restrict the incurrence of debt, or the issuance of disqualified stock, as defined, with certain exceptions, provided that we may incur debt or issue disqualified stock if, immediately after such incurrence or issuance, the ratio of the aggregate principal amount of all outstanding indebtedness of AREP and its subsidiaries on a consolidated basis to the tangible net worth of AREP and its subsidiaries on a consolidated basis would have been less than 1.75 to 1.0. As of March 31, 2005, such ratio was 0.76 to 1.0. In addition, both issues of notes require that on each quarterly determination date that the Fixed Charge Coverage Ratio of us and the guarantor of the notes (currently only AREH) for the four consecutive fiscal quarters most recently completed prior to such quarterly determination date be at least 1.5 to 1.0. For the four quarters ended March 31, 2005, such ratio was 2.44 to 1.0. If the ratio is less than 1.5 to 1.0, we will be deemed to have satisfied this test if there is deposited cash, which together with cash previously deposited for such purpose and not released, equal to the amount of interest payable on the notes for one year. If, at any subsequent quarterly determination date, the ratio is at least 1.5 to 1.0, the deposited funds will be released to us. The notes also require, on each quarterly determination date, that the ratio of total unencumbered assets, as defined, to the principal amount of unsecured indebtedness, as defined, be greater than 1.5 to 1.0 as of the last day of the most recently completed fiscal quarter. As of March 31, 2005, this ratio was 2.90 to 1.0. The notes also restrict the creation of liens, mergers, consolidations and sales of substantially all of our assets, and transactions with affiliates. As of March 31, 2005, based upon these tests, on a pro forma basis, giving effect to the issuance of the 71/8% notes due 2013, we and AREH could have incurred up to approximately $1.5 billion of additional indebtedness.
      The operating subsidiary of NEG Holding, of which we have agreed to acquire a membership interest, has a credit agreement which contains covenants that have the effect of restricting dividends or distributions. These, together with the ACEP indenture and the indenture governing the notes, likely will preclude our receiving payments from the operations of our principal hotel and casino and certain of our oil and gas properties.
Asset Sales and Purchases
      In the three months ended March 31, 2005, we sold four rental real estate properties and a golf resort for approximately $51.9 million which were encumbered by mortgage debt of approximately $10.7 million. The mortgage debt was repaid from the sale proceeds. Net proceeds from the sale or disposal of portfolio properties

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totaled approximately $41.2 million in the three months ended March 31, 2005. During the comparable period of 2004, net proceeds totaled approximately $25.3 million.
      Of the five properties, we sold one financing lease property for approximately $8.4 million which was encumbered by mortgage debt of approximately $3.8 million. The carrying value of this property was approximately $8.2 million; therefore, we recognized a gain on sale of approximately $0.2 million in the three months ended March 31, 2005, which is included in income from continuing operations. We sold four operating properties for approximately $43.5 million which was encumbered by mortgage debt of approximately $6.9 million. The carrying value of these properties was approximately $24.8 million. We recognized a gain on the sale of approximately $18.7 million in the three months ended March 31, 2005, which is included in income from discontinued operations.
      During the year ended December 31, 2004, we sold 57 rental real estate properties for approximately $245.4 million, which were encumbered by mortgage debt of approximately $93.8 million which was repaid from the sales proceeds. As of December 31, 2004, we had entered into conditional sales contracts or letters of intent for 15 additional rental real estate properties, all of which contracts or letters of intent are subject to purchaser’s due diligence and other closing conditions. Selling prices for the properties covered by the contracts or letters of intent would total approximately $97.9 million. These properties are encumbered by mortgage debt of approximately $36.0 million.
      Net proceeds from the sale or disposal of portfolio properties totaled approximately $151.6 million in the year ended December 31, 2004. During 2003, net sales proceeds totaled approximately $20.6 million.
      At March 31, 2005, we had 11 properties under contract or as to which letters of intent had been executed by the potential purchaser, all of which contracts or letters of intent are subject to purchaser’s due diligence and other closing conditions. Selling prices for the properties covered by the contracts or letters of intent would total approximately $45.5 million. These properties are encumbered by mortgage debt of approximately $25.3 million.
Capital Expenditures
      Capital expenditures for real estate, oil and gas operations, hotel and casino and hotel and resort operations were approximately $4.8 million and $1.7 million during the three months ended March 31, 2005 and 2004, respectively, and $63.8 million and $34.0 million during the years ended December 31, 2004 and 2003, respectively. In the year ended December 31, 2004, we acquired a property for approximately $14.6 million, a hotel and resort property for approximately $16.5 million and development property for approximately $62.2 million, the latter two acquired in the Grand Harbor acquisition.
Leases
      In 2003, 17 leases covering 17 rental real estate properties and representing approximately $2.2 million in annual rentals expired. Twelve leases originally representing $1.6 million in annual rental income were renewed for $1.4 million in annual rentals. Such renewals are generally for a term of five years. Five properties with annual rental income of $0.6 million were not renewed.
      In 2004, 11 leases covering 11 rental real estate properties and representing approximately $1.8 million in annual rentals expired. Eight leases representing $1.5 million in annual rental income were renewed for $1.5 million in annual rentals. Such renewals are generally for a term of five years. Three properties with annual rentals of $0.3 million were not renewed.
      In 2005, 14 leases covering 24 rental real estate properties representing approximately $3.6 million in annual rentals are scheduled to expire. Six leases representing approximately $2.9 million in annual rentals were renewed for approximately $2.9 million. Such renewals are generally for a term of 10 years. Three properties with annual rentals of approximately $0.2 million have not been renewed. The status of five properties with annual rentals of approximately $0.5 million has not yet been determined.
Distributions
      On March 31, 2004, we distributed to holders of record of our preferred units, as of March 12, 2004, 489,657 additional preferred units. Pursuant to the terms of the preferred units, on March 4, 2005, we declared

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our scheduled annual preferred unit distribution payable in additional preferred units at the rate of 5% of the liquidation preference of $10.00. On March 31, 2005, we distributed to holders of record as of March 15, 2005, 514,133 additional preferred units. In March 2005, the number of authorized preferred units was increased to 10,900,000.
      Our preferred units are subject to redemption at our option on any payment date, and the preferred units must be redeemed by us on or before March 31, 2010. The redemption price is payable, at our option, subject to the indenture, either all in cash or by the issuance of depositary units, in either case, in an amount equal to the liquidation preference of the preferred units plus any accrued but unpaid distributions thereon.
Cash and Cash Equivalents
      Our cash and cash equivalents and investment in U.S. government and agency obligations increased by $455.1 million during the three months ended March 31, 2005 primarily due to proceeds from the issuance of our 71/8% senior notes due 2013 ($471.5 million), property sales proceeds ($41.2 million), cash provided by operations ($27.3 million) and repayment of affiliates’ debt securities ($2.7 million), partially offset by purchase of equity securities ($66.3 million), repayment of affiliate debt ($16.6 million), capital expenditures ($4.8 million) and other ($6.4 million).
      Our cash and cash equivalents and investment in U.S. government and agency obligations increased by $305.3 million during the year ended December 31, 2004 primarily due to proceeds from the issuance of our 81/8% senior notes due 2012 and ACEP’s 7.85% senior secured notes due 2012 in the aggregate ($565.4 million), property sales proceeds ($151.6 million), proceeds from the sale of marketable equity in the aggregate and debt securities ($90.6 million), repayment of mezzanine loans ($49.1 million), cash provided by operations ($98.0 million), guaranteed payment from NEG Holding ($16.0 million), proceeds from mortgages payable ($10.0 million) and proceeds from the sale of other assets ($3.8 million) partially offset by the purchase of debt securities ($245.2 million), purchase of the Arizona Charlies’ ($125.9 million), the Grand Harbor and Oak Harbor acquisition ($78.6 million), purchase of debt securities of affiliates ($65.5 million), purchase of Atlantic Holdings debt ($36 million), repayment of affiliate debt ($25.0 million), capital expenditures ($63.8 million), rental real estate acquisitions ($14.6 million), periodic principal payments ($14.6 million) and other ($10.0 million).
      Of our cash and cash equivalents at December 31, 2004, approximately $75.2 million is at ACEP. The terms of ACEP’s 7.85% senior secured notes and its revolving credit facility restrict dividends and distributions to us, as well as redemptions of equity interests and other transactions that would make the cash available to AREP and its other subsidiaries.
      We received net proceeds of approximately $471.5 million from the issuance, in February 2005, of our 71/8% senior notes due 2013. Our cash has been used to fund the $180 million acquisition of TransTexas, and for general business purposes, including to pursue our primary business strategy of acquiring undervalued assets in either our existing lines of business or other businesses and to provide additional capital to grow our businesses.
Acquisitions
      On April 6, 2005, we acquired 100% of the equity of TransTexas, an oil and gas exploration and production company, for a purchase price of $180.0 million in cash.
      During December 2004, we acquired the following:
  •  $27.5 million aggregate principal amount of term notes issued by TransTexas, or the TransTexas Notes, for $28.2 million in cash, which included $0.7 million of accrued interest through December 6, 2004;
 
  •  All of the membership interests of Mid River, the assets of which consist of $38.0 million principal amount of term loans outstanding under the term loan and security agreement, dated as of November 16, 2004, among Panaco, as borrower, the lenders (as defined therein) and Mid River as administrative agent, or the Panaco Debt, and $0.1 million of accrued interest, through December 6, 2004, for $38.1 million in cash; and

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  •  $37.0 million principal amount of 3% notes due 2008 issued by Atlantic Coast Entertainment Holdings LLC, or Atlantic Holdings, or the Atlantic Holdings Notes, for $36.0 million in cash.
      On May 26, 2004, ACEP acquired two Las Vegas hotels and casinos, Arizona Charlie’s Decatur and Arizona Charlie’s Boulder, from Mr. Icahn and an entity affiliated with Mr. Icahn, for aggregate consideration of $125.9 million. At the closing of those acquisitions, AREH transferred 100% of the common stock of Stratosphere to ACEP. As a result, ACEP owns and operates three gaming and entertainment properties in the Las Vegas metropolitan area.
      In October 2003, pursuant to a purchase agreement dated as of May 16, 2003, we acquired all of the debt and 50% of the equity securities of NEG from entities affiliated with Mr. Icahn for an aggregate consideration of approximately $148.1 million plus approximately $6.7 million of accrued interest on the debt securities.
      In July 2004, we acquired Grand Harbor and Oak Harbor, two waterfront communities in Vero Beach, Florida. The communities include three golf courses, a tennis complex, fitness center, beach club and an assisted living facility. In addition, we acquired approximately 400 acres of land to the north of Grand Harbor which currently has entitlements to build approximately 600 homes and an 18 hole golf course. The total purchase price was approximately $75.0 million.
      In January 2004, we purchased a 34,422 square foot commercial condominium unit in New York City for approximately $14.5 million.
Off-Balance Sheet Arrangements
      We do not have any off-balance sheet arrangements. As of March 31, 2005, AREH was the sole guarantor of each of the 81/8% senior notes due 2012 and the 71/8% senior notes due 2013 issued by us. In conjunction with our issuance of each series of the senior notes, we loaned AREH substantially all of the proceeds from the issuance of those notes on substantially similar terms as those contained in the notes. Since AREH’s financial statements already reflect this obligation, AREH does not expect the guarantees to have a material impact on its financial condition, revenues, expenses or results of operations.
Critical Accounting Policies and Estimates
      Our consolidated financial statements have been prepared in accordance with generally accepted accounting principles, or GAAP. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Among others, estimates are used when accounting for valuation of investments, recognition of casino revenues and promotional allowances and estimated costs to complete its land, house and condominium developments. Estimates and assumptions are evaluated on an ongoing basis and are based on historical and other factors believed to be reasonable under the circumstances. The results of these estimates may form the basis of the carrying value of certain assets and liabilities and may not be readily apparent from other sources. Actual results, under conditions and circumstances different from those assumed, may differ from estimates.
      We accounted for our acquisitions of NEG, TransTexas and the Arizona Charlie’s hotels and casinos as assets transferred between entities under common control which requires that they be accounted for at historical costs similar to a pooling of interests. NEG’s investment in NEG Holding constitutes a variable interest entity. In accordance with GAAP, we have determined that NEG is not the primary beneficiary of NEG Holding and therefore we do not consolidate NEG Holding in our consolidated financial statements.
      We believe the following accounting policies are critical to our business operations and the understanding of results of operations and affect the more significant judgments and estimates used in the preparation of our consolidated financial statements.
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of
      Long-lived assets held and used by us and long-lived assets to be disposed of, are reviewed for impairment whenever events or changes in circumstances, such as vacancies and rejected leases, indicate that the carrying amount of an asset may not be recoverable.

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      In performing the review for recoverability, we estimate the future cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected future cash flows, undiscounted and without interest charges, is less than the carrying amount of the asset an impairment loss is recognized. Measurement of an impairment loss for long-lived assets that we expect to hold and use is based on the fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell.
Commitments and Contingencies — Litigation
      On an ongoing basis, we assess the potential liabilities related to any lawsuits or claims brought against us. While it is typically very difficult to determine the timing and ultimate outcome of such actions, we use our best judgment to determine if it is probable that we will incur an expense related to the settlement or final adjudication of such matters and whether a reasonable estimation of such probable loss, if any, can be made. In assessing probable losses, we make estimates of the amount of insurance recoveries, if any. We accrue a liability when we believe a loss is probable and the amount of loss can be reasonably estimated. Due to the inherent uncertainties related to the eventual outcome of litigation and potential insurance recovery, it is possible that certain matters may be resolved for amounts materially different from any provisions or disclosures that we have previously made.
Marketable Equity and Debt Securities and Investment in U.S. Government and Agency Obligations
      Investments in equity and debt securities are classified as either held-to-maturity or available for sale for accounting purposes. Investment in U.S. government and agency obligations are classified as available for sale. Available for sale securities are carried at fair value on our balance sheet. Unrealized holding gains and losses are excluded from earnings and reported as a separate component of partners’ equity. Held-to-maturity securities are recorded at amortized cost.
      A decline in the market value of any held-to-maturity security below cost that is deemed to be other than temporary results in a reduction in carrying amount to fair value. The impairment is charged to earnings and a new cost basis for the security is established. Dividend income is recorded when declared and interest income is recognized when earned.
Mortgages and Notes Receivable
      We have generally not recognized any profit in connection with the property sales in which certain purchase money mortgages receivable were taken back. Such profits are being deferred and will be recognized when the principal balances on the purchase money mortgages are received.
      We engage in real estate lending, including making second mortgage or secured mezzanine loans to developers for the purpose of developing single-family homes, luxury garden apartments or commercial properties. These loans are subordinate to construction financing and we target an interest rate in excess of 20% per annum. However interest is not paid periodically and is due at maturity or earlier from unit sales or refinancing proceeds. We defer recognition of interest income on mezzanine loans pending receipt of principal and interest payments.
Revenue Recognition
      Revenue from real estate sales and related costs are recognized at the time of closing primarily by specific identification. We follow the guidelines for profit recognition set forth by Financial Accounting Standards Board (FASB) Statement No. 66, Accounting for Sales of Real Estate.
Casino Revenues and Promotional Allowances
      We recognize revenues in accordance with industry practice. Casino revenue is recorded as the net win from gaming activities, the difference between gaming wins and losses. Casino revenues are net of accruals for anticipated payouts of progressive and certain other slot machine jackpots. Revenues include the retail value of rooms, food and beverage and other items that are provided to customers on a complimentary basis. A corresponding amount is deducted as promotional allowances. The cost of such complimentaries is included in “Hotel and casino operating expenses.” We also reward customers, through the use of loyalty programs, with

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points based on amounts wagered, that can be redeemed for a specified period of time for cash. We deduct the cash incentive amounts from casino revenue.
Natural Gas Production Imbalances
      We account for natural gas production imbalances using the sales method, whereby we recognize revenue on all natural gas sold to our customers notwithstanding the fact its ownership may be less than 100% of the natural gas sold. We record liabilities for imbalances greater than our proportionate share of remaining natural gas reserves.
Hedging Agreements
      From time to time, we enter into commodity price swap agreements (the Hedge Agreements) to reduce our exposure to price risk in the spot market for natural gas. We follow Statement of Financial Accounting Standards No. 133 (SFAS 133), Accounting for Derivative Instruments and Hedging Activities, which was amended by Statement of Financial Accounting Standards No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities. These pronouncements established accounting and reporting standards for derivative instruments and for hedging activities, which generally require recognition of all derivatives as either assets or liabilities in the balance sheet at their fair value. The accounting for changes in fair value depends on the intended use of the derivative and its resulting designation. We elected not to designate these instruments as hedges for accounting purposes, accordingly both realized and unrealized gains and losses are included in oil and natural gas sales.
Oil and Natural Gas Properties
      We utilize the full cost method of accounting for our crude oil and natural gas properties. Under the full cost method, all productive and nonproductive costs incurred in connection with the acquisition, exploration and development of crude oil and natural gas reserves are capitalized and amortized on the units-of-production method based upon total proved reserves. The costs of unproven properties are excluded from the amortization calculation until the individual properties are evaluated and a determination is made as to whether reserves exist. Conveyances of properties, including gains or losses on abandonments of properties, are treated as adjustments to the cost of crude oil and natural gas properties, with no gain or loss recognized.
      Under the full cost method, the net book value of oil and natural gas properties, less related deferred income taxes, may not exceed the estimated after-tax future net revenues from proved oil and natural gas properties, discounted at 10% per year (the ceiling limitation). In arriving at estimated future net revenues, estimated lease operating expenses, development costs, abandonment costs, and certain production related and ad-valorem taxes are deducted. In calculating future net revenues, prices and costs in effect at the time of the calculation are held constant indefinitely, except for changes, which are fixed and determinable by existing contracts. The net book value is compared to the ceiling limitation on a quarterly basis.
Accounting for Asset Retirement Obligations
      We account for our asset retirement obligation under Statement of Financial Accounting Standards No. 143 (SFAS 143), Accounting for Asset Retirement Obligations. SFAS 143 provides accounting requirements for costs associated with legal obligations to retire tangible, long-lived assets. Under SFAS 143, an asset retirement obligation is needed at fair value in the period in which it is incurred by increasing the carrying amount for the related long-lived asset. In each subsequent period, the liability is accreted to its present value and the capitalized cost is depreciated over the useful life of the related asset.
Income Taxes
      No provision has been made for federal, state or local income taxes on the results of operations generated by partnership activities as such taxes are the responsibility of the partners. Stratosphere Corporation, NEG and TransTexas, our corporate subsidiaries, account for their income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards.

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      Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
      Management periodically evaluates all evidence, both positive and negative, in determining whether a valuation allowance to reduce the carrying value of deferred tax assets is still needed. In 2004 and 2003, we concluded, based on the projected allocations of taxable income, that our corporate subsidiaries, NEG, Stratosphere and TransTexas, more likely than not will realize a partial benefit from their deferred tax assets and loss carryforwards. Ultimate realization of the deferred tax asset is dependent upon, among other factors, our corporate subsidiaries’ ability to generate sufficient taxable income within the carryforward periods and is subject to change depending on the tax laws in effect in the years in which the carryforwards are used.
Properties
      Properties held for investment, other than those accounted for under the financing method, are carried at cost less accumulated depreciation unless declines in the value of the properties are considered