AMERICAN REAL ESTATE PARTNERS L P - 10-Q Quarterly Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-Q

(MARK ONE)

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002

OR

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

FOR THE TRANSITION PERIOD FROM __________ TO __________

COMMISSION FILE NUMBER 1-9516

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

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

100 SOUTH BEDFORD ROAD, MT. KISCO, NY 10549
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

(914) 242-7700
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

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

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INDEX

1

AMERICAN REAL ESTATE PARTNERS, L.P.
FORM 10-Q-JUNE 30, 2002

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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

CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

See notes to consolidated financial statements.

2

AMERICAN REAL ESTATE PARTNERS, L.P.
FORM 10-Q JUNE 30, 2002
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)

See notes to consolidated financial statements.

3

AMERICAN REAL ESTATE PARTNERS, L.P.
FORM 10-Q-JUNE 30, 2002
CONSOLIDATED STATEMENTS OF EARNINGS -- (CONTINUED)
(UNAUDITED)

See notes to consolidated financial statements.

4

AMERICAN REAL ESTATE PARTNERS, L.P.
FORM 10-Q-JUNE 30, 2002
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS'
EQUITY AND COMPREHENSIVE INCOME
SIX MONTHS ENDED JUNE 30, 2002 (UNAUDITED) (IN $000'S)

Accumulated other comprehensive loss at June 30, 2002 was ($447).

See notes to consolidated financial statements.

5

AMERICAN REAL ESTATE PARTNERS, L.P.
FORM 10-Q-JUNE 30, 2002
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

See notes to consolidated financial statements.

6

AMERICAN REAL ESTATE PARTNERS, L.P.
FORM 10-Q-JUNE 30, 2002
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. GENERAL

The accompanying consolidated financial statements and related footnotes
should be read in conjunction with the consolidated financial statements and
related footnotes contained in the Company's annual report on Form 10-K for the
year ended December 31, 2001.

The consolidated financial statements include the accounts of the Company
and its wholly-owned and majority owned subsidiaries. All material intercompany
accounts and transactions have been eliminated in consolidation. Certain amounts
in the 2001 consolidated financial statements have been reclassified to conform
to the 2002 presentation. These reclassifications had no effect on the Company's
net earnings.

The results of operations for the three and six months ended June 30, 2002
are not necessarily indicative of the results to be expected for the full year.
Hotel, casino and resort operations are highly seasonal in nature and are not
necessarily indicative of results expected for the full year.

2. RELATED PARTY TRANSACTIONS

a. The Company entered into a license agreement with an affiliate of the
General Partner for a portion of office space at an annual rental of
approximately $135,000, plus its share of certain additional rent. Such
agreement was approved by the Audit Committee of the Board of Directors of the
General Partner (the 'Audit Committee'). For the three and six months ended
June 30, 2002 the Company paid rent of approximately $38,000 and $74,000,
respectively and for the three and six months ended June 30, 2001 the Company
paid rent of approximately $35,000 and $70,000, respectively.

b. Stratosphere Corp. ('Stratosphere') received from affiliates of the
General Partner approximately $400,000 and $876,000 as reimbursement for
administrative services performed by Stratosphere personnel during the three and
six months ended June 30, 2002, respectively. For the three and six months ended
June 30, 2001, Stratosphere received approximately $344,000 and $449,000,
respectively.

Stratosphere recorded hotel revenue of approximately $39,000 and $97,000 for
the three and six months ended June 30, 2002, respectively, in connection with a
tour and travel agreement entered into with an affiliate of the General Partner.
For the three and six months ended June 30, 2001, Stratosphere recorded hotel
revenue of approximately $177,000 and $309,000, respectively.

c. As of August 1, 2002 affiliates of Carl C. Icahn ('Icahn'), the Chairman
of the Board of the General Partner, own 8,073,466 Preferred Units and
39,706,836 Limited Partnership Units.

d. See Note 4 regarding Note Receivable -- Affiliate and Note 6 regarding
Equity Interest in GB Holdings, Inc.

3. COMMITMENTS AND CONTINGENCIES

a. On January 31, 2001, Stratosphere was named in an action styled Disabled
Rights Action Committee v. Stratosphere Gaming Corp., Case No. A430070, in the
Eighth Judicial District Court of the State of Nevada. The complaint alleges a
number of violations of the Americans with Disabilities Act ('ADA'), including
inadequate room selection, door widths and other similar items. Simultaneously
with the complaint, plaintiffs filed a Motion for Preliminary Injunction,
seeking to have construction halted on the new hotel tower until the property
fully complies with the ADA. Stratosphere removed the action to the United
States District Court in Nevada and it is now styled as Disabled Rights Action
Committee v. Stratosphere Gaming Corp., Case No. CV-S-01-0162-RLH (PAL).

The federal district court held a hearing on plaintiffs' Motion for
Preliminary Injunction and denied the motion, focusing upon what the Court
believed to be the plaintiffs' lack of irreparable injury. The federal district
court also granted Stratosphere's Motion to Dismiss the plaintiffs' state law
claims,

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leaving in place only the ADA claims. Stratosphere and the Plaintiffs then filed
Motions for Summary Judgement. The District Court granted and denied in part
each of the parties respective motions. The Court ordered that Stratosphere must
make certain renovations to 532 rooms that were opened in 1996. The Court issued
an injunction requiring that these renovations be completed by August 9, 2002.
Stratosphere had already commenced these renovations prior to the Court's order
and completed these renovations in June 2002.

b. In January 2002, the Cape Cod Commission, a regional planning body
created in 1989, concluded that the Company's New Seabury development is within
its jurisdiction. The proposed residential and commercial development is allowed
under a special permit issued for the property in 1964.

In February 2002, New Seabury Properties LLC, the Company's subsidiary and
owner of the property, filed a civil complaint in Barnstable County
Massachusetts Superior Court appealing the administrative decision by the Cape
Cod Commission. The Court has not yet rendered its decision. The Company cannot
predict the effect on the development process if it loses the appeal.

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

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

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

The Stratosphere Parties have evaluated the project and have determined that
the amount of $1,004,059 is properly due and payable to satisfy all claims for
the work performed, including the claim by Tiffiny. This amount has been
segregated in a separate interest bearing account. The Stratosphere Parties
intend to vigorously defend the action for claims in excess of $1,004,059.

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

e. In January 2002, Kmart Corp., a tenant leasing seven properties owned by
the Company which represent approximately $1,374,000 in annual rentals, filed a
voluntary petition for reorganization under Chapter 11 of the Federal Bankruptcy
Code. Pursuant to an order of the Bankruptcy Court, four leases have been
rejected representing approximately $713,000 in annual rents. The related
properties are being held for sale. The Company previously recorded a provision
for loss on real estate of approximately $1.9 million on these four properties
in the year ended December 31, 2001. As of August 1, 2002, the Company has not
been notified regarding the three remaining leases representing approximately
$661,000 in annual rents. The tenant is current in its rent payments on these
three leases. At June 30, 2002, the carrying value of the seven properties was
approximately $6,826,000, which reflects the Company's estimate of net
realizable value.

f. In September 2001, Ames Department Stores, a tenant in a property owned
by the Company filed a voluntary petition for reorganization under Chapter 11 of
the Bankruptcy Code. The tenant rejected the lease effective March 15, 2002. The
annual rent for this property was approximately

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$327,000. At June 30, 2002, the carrying value of this property was
approximately $2,158,000, which reflects the Company's estimate of net
realizable value.

4. NOTE RECEIVABLE-AFFILIATE

On December 27, 2001, the Company entered into a transaction with Carl C.
Icahn, Chairman of the Board of the General Partner, pursuant to which the
Company made a two-year $250 million loan to Mr. Icahn, secured by securities
consisting of (i) $250 million aggregate market value of the Company's units
owned by affiliates of Mr. Icahn (approximately 21.1 million depositary units
and 7.7 million preferred units) and (ii) shares of a private company owned by
Mr. Icahn, which shares were represented to have an aggregate book value of at
least $250 million, together with an irrevocable proxy on sufficient additional
shares of the private company so that the pledged shares and the shares covered
by the proxy equal in excess of 50% of the private company's shares. The private
company owns other Icahn investments and does not own the Company's units. The
loan bears interest, payable semi-annually at a per annum rate equal to the
greater of (i) 3.9% and (ii) 200 basis points over 90 day LIBOR to be reset each
calendar quarter. The applicable rates during the three months ended March 31,
2002 and June 30, 2002 was 3.90% and 4.03%, respectively. The loan must be
prepaid in an amount of up to $125 million to the extent that the Company
requests such funds for an investment opportunity and may be prepaid at any time
by Mr. Icahn. The Company entered into this transaction to earn interest income
on a secured investment. In the event of a loan default, the Company would at
its option, liquidate the shares of the private company or reacquire its own
units, or both, to satisfy the loan. Accrued interest income of approximately
$2.6 million and $5.0 million was recorded on this loan in the three and six
months ended June 30, 2002, respectively, and is included in 'Interest income on
U.S. Government and Agency obligations and other investments' in the
Consolidated Statements of Earnings. Pursuant to the loan agreement, on July 1,
2002, Mr. Icahn paid approximately $5.1 million to the Company, representing
accrued interest to June 30, 2002.

5. HOTEL, CASINO AND RESORT OPERATING PROPERTIES

a. Stratosphere Hotel and Casino

The Company owns approximately 51% of Stratosphere and consolidates
Stratosphere in its financial statements. Stratosphere owns and operates the
Stratosphere Tower Casino and Hotel located in Las Vegas, Nevada.

On February 1, 2002 the Company entered into a merger agreement with
Stratosphere under which the Company will acquire the remaining shares of
Stratosphere that the Company does not currently own. The Company currently owns
approximately 51% of Stratosphere and an Icahn affiliate owns approximately
38.6%. The initial determination to engage in the transaction at the prices set
forth below was previously announced by the Company in September 2000.

Under the agreement the stockholders who are unaffiliated with Mr. Icahn
will receive a cash price of $45.32 per share (approximately $9.6 million) and
the Icahn related stockholders other than the Company will receive a cash price
of $44.33 per share (approximately $34.7 million). The Company will pay an
aggregate of approximately $44.3 million for the Stratosphere shares.
Stratosphere filed a Preliminary Proxy Statement with the Securities and
Exchange Commission on March 14, 2002 and expects this transaction to be
completed in the fourth quarter of 2002.

The acquisition by the Company of the minority shares will be accounted for
as a purchase in accordance with Financial Accounting Standards Board ('FASB')
Statement No. 141, 'Business Combinations.' The acquisition by the Company of
the common stock held by an Icahn affiliate will be recorded at historical cost.

Stratosphere's operations for the three and six months ended June 30, 2002
and 2001 have been included in 'Hotel and casino operating income and expenses'
in the Consolidated Statements of Earnings. Hotel and casino operating expenses
include all expenses except for approximately $3,319,000 and $6,636,000 of
depreciation and amortization for the three and six months ended June 30, 2002,
respectively, and $2,229,000 and $4,652,000 of depreciation and amortization for
the three and six

9

months ended June 30, 2001, respectively. Such amounts have been included in
'Depreciation and amortization expense' in the Consolidated Statements of
Earnings.

b. Hotel and Resort Operating Properties

Hotel and resort operations for the three and six months ended June 30, 2002
and 2001 have been included in 'Hotel and resort operating income and expenses'
in the Consolidated Statements of Earnings. Hotel and resort operating expenses
include all expenses except for approximately $552,000 and $921,000 of
depreciation and amortization for the three and six months ended June 30, 2002,
respectively and $325,000 and $648,000 of depreciation and amortization for the
three and six months ended June 30, 2001, respectively. Such amounts have been
included in 'Depreciation and amortization expense' in the Consolidated
Statements of Earnings.

6. EQUITY INTEREST IN GB HOLDINGS, INC.

In May 2002, the Company was qualified as a holding company by the New
Jersey Casino Control Commission (the 'Casino Control Commission') and in
accordance with a prior agreement repurchased its interest in the Sands Hotel
and Casino (the 'Sands'), located in Atlantic City New Jersey, from affiliates
of the General Partner. As a result, the Company acquired approximately 3.6
million common shares (36%) of GB Holdings Inc. and $26.9 million face amount of
GB Property First Mortgage Notes. The Company paid approximately $69.1 million
to reacquire its interests representing the affiliates advances plus accrued
interest of approximately $11 million. In accordance with the agreement,
interest was accrued from March 2000 to May 2002 at an annual rate of 1 1/2%
over the prime rate. Interest expense of approximately $353,000 and $919,000 was
recorded on this obligation in the three and six months ended June 30, 2002,
respectively, and interest expense was $1,357,000 and $3,052,000 in the three
and six months ended June 30, 2001, respectively. As required by the New Jersey
Casino Control Act, (the 'Casino Control Act') the Partnership Agreement was
amended to provide that securities of the Company are held subject to the
condition that if a holder thereof is found to be disqualified by the Casino
Control Commission, pursuant to the provisions of the Casino Control Act, such
holder shall dispose of his interest in the Company in accordance with the
Casino Control Act.

7. MARKETABLE EQUITY AND DEBT SECURITIES

The Company has equity and debt investments in Philip Services Corp.
('Philips') which were classified as available-for-sale investments at December
31, 2001.

The market value of Philips' common stock has declined steadily since it was
acquired by the Company. Based on a review of Philips' financial statements
during the second quarter of 2002, management of the Company has deemed the
decrease in value to be other than temporary. As a result, the Company wrote
down its investment in Philips' common stock by a charge to earnings of
approximately $8.5 million in the quarter ended June 30, 2002. This investment
had been previously written down by approximately $6.8 million in charges to
other comprehensive income ('OCI'). Such amount has been removed from OCI and is
included in the above-mentioned $8.5 million charge to earnings. The Company's
adjusted carrying value of Philips' common stock is approximately $1 million at
June 30, 2002.

The Company also has a participation in Philips' debt with an original cost
at the date of their acquisition of approximately $19.7 million. At December 31,
2001, such notes were classified as available-for-sale securities and were
written down through charges to OCI, to an estimated fair market value of
approximately $13.2 million at June 30, 2002. Upon concluding its review of
these investments in the second quarter of 2002, management determined that such
investments were more properly classified as notes receivable. Approximately
$6.6 million of charges to OCI were reversed and the investments were
re-classified at their original cost to 'Mortgages and notes receivable' at June
30, 2002. These adjustments had no effect on the Company's reported earnings for
the three months and six months ended June 30, 2002.

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8. MORTGAGES AND NOTES RECEIVABLE

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

a. In May 2002, the Company received approximately $31.3 million for
prepayment of two mezzanine loans on a New York City condominium property. The
Company had advanced $23 million to the developer. The balance of the prepayment
$8.3 million represented accrued interest ($7.9 million) and exit fees ($.4
million) which amounts were recognized as interest income and other income,
respectively, in the Consolidated Statements of Earnings for the three and six
months ended June 30, 2002.

b. At June 30, 2002, the Company had funded approximately $20.6 million of
mezzanine loans and had commitments to fund, under certain conditions,
additional advances of approximately $7.7 million. At June 30, 2002, accrued
interest of approximately $1.3 million has been deferred pending receipt of
principal and interest payments, in connection with these loans.

9. PREFERRED UNITS

Pursuant to the terms of the Preferred Units, on February 22, 2002, the
Company declared its scheduled annual preferred unit distribution payable in
additional Preferred Units at the rate of 5% of the liquidation preference of
$10. The distribution was payable March 31, 2002 to holders of record as of
March 15, 2002. A total of 444,332 additional Preferred Units were issued. As of
June 30, 2002, 9,330,963 Preferred Units are issued and outstanding.

10. EARNINGS PER SHARE

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

Diluted earnings per share uses net earnings attributable to limited partner
interests as the numerator with the denominator based on the weighted average
number of units and equivalent units outstanding. The Preferred Units are
considered to be equivalent units.

For the three and six months ended June 30, 2002 and 2001, basic and diluted
earnings per weighted average limited partnership unit are detailed as follows:

11. COMPREHENSIVE INCOME

The components of comprehensive income include net income and certain
amounts previously reported directly in equity.

Comprehensive income for the three and six months ended June 30, 2002 and
2001 is as follows (in $000's):

12. SEGMENT REPORTING

The Company is engaged in five operating segments consisting of: (i) rental
real estate, (ii) hotel and resort operating properties, (iii) hotel and casino
operating properties, (iv) land sales, house and condominium development, and
(v) investment in securities including investment in other limited partnerships
and marketable equity and debt securities. The Company's reportable segments
offer different services and require different operating strategies and
management expertise. There have been no material changes in segment assets
since December 31, 2001.

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

12

The revenues and net earnings for each of the reportable segments are
summarized as follows for the three and six months ended June 30, 2002 and 2001
(in $000's).

(table continued on next page)

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(table continued from previous page)

13. NEW ACCOUNTING PRONOUNCEMENTS

As of January 1, 2002 the Company has adopted the Statements of Financial
Accounting Standards Nos. 141, 142 and 144 (SFAS 141, SFAS 142 and SFAS 144)
'Business Combinations', 'Goodwill and Other Intangible Assets' and 'Accounting
for the Impairment or Disposal of Long-Lived Assets.' In April 2002, the FASB
issued SFAS No. 145 which rescinds SFAS's Nos. 4, 44 and 64 which required all
gains and losses on extinguishment of debt to be classified as an extraordinary
item. The Company will adopt the provisions of SFAS No. 145 effective
January 1, 2003. The adoption of SFAS 141, SFAS 142, SFAS 144 and SFAS No. 145
has not had any material impact on the Company's consolidated financial
statements.

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

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

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

GENERAL

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

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

14

entertainment industries, non-performing loans, the securities of entities which
own, manage or develop significant real estate assets, including limited
partnership units and securities issued by real estate investment trusts and the
acquisition of debt or equity securities of companies which may be undergoing
restructuring and under-performing properties that may require active asset
management and significant capital improvements. The Company has made
investments in the gaming industry and may consider additional gaming industry
investments and investments related to the entertainment industry. Such
investments may include additional casino properties and those in the
entertainment field, such as movie theater interests, and the financing and
investment in the movie production and distribution industry. Such investments
may include acquisitions from, or in joint venture or co-management with, Icahn,
the General Partner or their affiliates, provided that the terms thereof are
fair and reasonable to the Company. The Company notes that while there are still
opportunities available to acquire investments that are undervalued, acquisition
opportunities in the real estate market for value-added investors have become
more competitive to source and the increased competition may have some impact on
the spreads and the ability to find quality assets that provide returns that are
sought. These investments may not be readily financeable and may not generate
immediate positive cash flow for the Company. As such, they require the Company
to maintain a strong capital base in order to react quickly to these market
opportunities as well as to allow the Company the financial strength to develop
or reposition these assets. While this may impact cash flow in the near term and
there can be no assurance that any asset acquired by the Company will increase
in value or generate positive cash flow, the Company intends to focus on assets
that it believes may provide opportunities for long-term growth and further its
objective to diversify its portfolio.

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

By the end of the year 2004, net leases representing approximately 15% of
the Company's net annual rentals from its portfolio will be due for renewal, and
by the end of the year 2006, net leases representing approximately 35% of the
Company's net annual rentals will be due for renewal. Since most of the
Company's properties are net-leased to single, corporate tenants, it may be
difficult and time-consuming to re-lease or sell those properties that existing
tenants decline to re-let or purchase and the Company may be required to incur
expenditures to renovate such properties for new tenants. In addition, the
Company may become responsible for the payment of certain operating expenses,
including maintenance, utilities, taxes, insurance and environmental compliance
costs associated with such properties, which are presently the responsibility of
the tenant. As a result, the Company could experience an adverse impact on net
cash flow in the future from such properties.

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

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

The Company has notified each of the responsible tenants to attempt to
ensure that they cause any required investigation and/or remediation to be
performed and most tenants continue to take appropriate action. However, if the
tenants fail to perform responsibilities under their leases referred to above,
based solely upon the consultant's estimates resulting from its Phase I
Environmental Site

15

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

The Company is in the process of updating its Phase I Site Assessments for
certain of its environmentally sensitive properties including properties with
open RCRA requirements. Approximately thirty-five updates are expected to be
completed in 2002 with another forty scheduled for the year 2003.

RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2002 COMPARED TO THREE MONTHS ENDED JUNE 30, 2001

Gross revenues increased by $15,176,000, or 21.9%, during the three months
ended June 30, 2002 as compared to the same period in 2001. This increase
reflects increases of $5,342,000 in hotel and casino operating income,
$5,180,000 in interest income on U.S. Government and Agency Obligations and
other investments, $5,168,000 in land, house and condominium sales, $848,000 in
hotel and resort operating income and $549,000 in dividend and other income
partially offset by decreases of $1,320,000 in equity in earnings of GB
Holdings, Inc., $442,000 in financing lease income and $149,000 in rental
income. The increase in hotel and casino operating income is primarily
attributable to an increase in gaming and hotel revenues as a result of
increased room capacity brought about by the hotel expansion. The average daily
rate ('ADR') decreased $1 to $49 and percentage occupancy decreased
approximately 8% to 90.2%. The increase in interest income on U.S. Government
and Agency obligations and other investments is primarily attributable to
interest earned on the prepayment of a mezzanine loan, partially offset by a
decline in interest rates on U.S. Government and Agency obligations. The
increase in land, house and condominium sales is primarily due to an increase in
the number of units sold. The increase in hotel and resort operating income is
primarily attributable to increased revenues at New Seabury as prior period
revenues were negatively impacted by construction activities. The decrease in
equity in earnings of GB Holdings, Inc. is primarily due to decreased casino
revenue partially offset by decreased casino expenses.

Expenses increased by $6,498,000, or 12.0%, during the three months ended
June 30, 2002 as compared to the same period in 2001. This increase reflects
increases of $2,856,000 in the cost of land, house and condominium sales,
$2,273,000 in hotel and casino operating expenses, $1,352,000 in depreciation
and amortization, $798,000 in rental property expenses, $336,000 in hotel and
resort operating expenses and $166,000 in general and administrative expenses
partially offset by a decrease of $1,283,000 in interest expense. The increase
in the cost of land, house and condominium sales is due to the increased sales
as discussed above. Costs as a percentage of sales decreased from 79% in 2001 to
71% in 2002 primarily due to higher margin sales in 2002. The increase in hotel
and casino operating expenses is primarily attributable to increased costs
associated with increased revenues. Costs as a percentage of sales declined from
92% in 2001 to 85% in 2002 as hotel and casino revenues increased at a greater
rate than hotel and casino expenses. The increase in depreciation expense is
primarily attributable to the expansion of the Stratosphere hotel and casino.
The increase in property expenses is primarily due to an increase in expenses
related to off-lease properties and expenses of the New Seabury development
litigation. The decrease in interest expense is primarily due to repayment of
debt to affiliates in May of 2002 in connection with the Sands repurchase
obligation, as well as decreased interest rates prior to repayment.

Earnings from land, house and condominium operations increased in the second
quarter of 2002 compared to the second quarter of 2001. However, the decrease in
land inventory in approved sub-divisions is expected to negatively impact
earnings from this business segment unless mitigated by the purchase of land,
development and sale of units in approved sub-divisions.

16

As a result of the completion of Stratosphere's additional 1,000 rooms and
related amenities in June 2001, hotel and casino operating revenues and expenses
have increased. Increased room capacity provided more hotel guests thereby
increasing revenues. Management anticipates decreased hotel and casino operating
revenues in the third quarter of 2002, compared to the third quarter of 2001,
due to the general economic conditions and increased competition from high-end
casino hotels. Management anticipates that fourth quarter 2002 hotel and casino
operating revenues may improve, as compared to the fourth quarter of 2001 which
was severely impacted by the September 11, 2001 terrorist attacks. As a result
of a new collective bargaining agreement which is retroactive to June 1, 2002,
payroll and related expenses are expected to increase by $1 million for the
remainder of 2002.

Earnings before property and securities transactions and minority interest
increased during the three months ended June 30, 2002 by $8,678,000 as compared
to the same period in 2001.

A provision for loss on real estate of $926,000 was recorded in the three
months ended June 30, 2002. There was no such provision in the comparable period
of 2001.

Gain on property transactions decreased by $1,362,000 during the three
months ended June 30, 2002 as compared to the same period in 2001 as there were
no property dispositions in the quarter ended June 30, 2002.

A write-down of equity securities available for sale of $8,476,000 was
recorded in the three months ended June 30, 2002. No such write-down was
recorded in the comparable period in 2001.

Minority interest in the net earnings of Stratosphere Corporation increased
by $473,000 during the three months ended June 30, 2002 as compared to the same
period in 2001 due to an increase in Stratosphere's net income.

Net earnings for the three months ended June 30, 2002 decreased by
$2,559,000 as compared to the three months ended June 30, 2001 primarily due to
the write-down of equity securities ($8.5 million), decreased earnings from
property transactions ($2.3 million), decreased equity in earnings of
GB Holdings, Inc. ($1.3 million), increased depreciation and amortization ($1.3
million) and increased rental property expenses ($.8 million) partially offset
by increased interest income ($5.2 million), increased earnings from hotel and
casino operations ($3.1 million), increased earnings from land, house, and
condominium sales ($2.3 million) and decreased interest expense ($1.3 million).

Diluted earnings per weighted average limited partnership unit outstanding
before property and security transactions were $.41 in the three months ended
June 30, 2002 compared to $.27 in the comparable period of 2001, and net loss
from property and securities transactions was $.17 in the three months ended
June 30, 2002 compared to a net gain of $.02 in the comparable period of 2001.
Diluted earnings per weighted average limited partnership unit outstanding
totalled $.24 in the three months ended June 30, 2002 compared to $.29 in the
comparable period of 2001.

SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO SIX MONTHS ENDED JUNE 30, 2001

Gross revenues increased by $26,702,000, or 19.6%, during the six months
ended June 30, 2002 as compared to the same period in 2001. This increase
reflects increases of $13,533,000 in land, house and condominium sales,
$9,236,000 in hotel and casino operating income, $2,262,000 in interest income
on U.S. Government and Agency Obligations and other investments, $1,182,000 in
equity in earnings of GB Holdings, Inc., $970,000 in hotel and resort operating
income, and $587,000 in rental income partially offset by decreases of $929,000
in financing lease income and $139,000 in dividend and other income. The
increase in land, house and condominium sales is primarily due to an increase in
the number of units sold. The increase in hotel and casino operating income is
primarily attributable to an increase in gaming and hotel revenues as a result
of increased room capacity brought about by the hotel expansion. The average
daily rate ('ADR') remained at $49; however, percentage occupancy decreased
approximately 10% to 88.1%. The increase in interest income on U.S. Government
and Agency obligations and other investments is primarily attributable to
interest earned on a mezzanine loan, partially offset by a decline in interest
rates on U.S. Government and Agency obligations. The increase in equity in
earnings of GB Holdings, Inc. is primarily due to decreased casino expenses. The
increase in hotel and resort operating income is primarily attributable to
increased revenues at New Seabury as prior period revenues were negatively
impacted by construction activities. The increase in rental income

17

is primarily attributable to reclassifications of financing leases to operating
leases. The decrease in financing lease income is the result of lease
expirations, reclassifications of financing leases and normal financing lease
amortization.

Expenses increased by $15,612,000, or 14.7%, during the six months ended
June 30, 2002 as compared to the same period in 2001. This increase reflects
increases of $9,256,000 in the cost of land, house and condominium sales,
$4,777,000 in hotel and casino operating expenses, $2,211,000 in depreciation
and amortization, $1,305,000 in rental property expenses and $613,000 in hotel
and resort operating expenses partially offset by decreases of $2,448,000 in
interest expense and $102,000 in general and administrative expenses. The
increase in the cost of land, house and condominium sales is due to the
increased sales as discussed above. Costs as a percentage of sales decreased
from 74% in 2001 to 72% in 2002 primarily due to higher margin sales in 2002.
The increase in hotel and casino operating expenses is primarily attributable to
increased costs associated with increased revenues. Costs as a percentage of
sales declined from 90% in 2001 to 85% in 2002 as hotel and casino revenues
increased at a greater rate than hotel and casino expenses. The increase in
depreciation expense is primarily attributable to the expansion of the
Stratosphere Hotel and Casino. The increase in property expenses is primarily
due to an increase in expenses related to off-lease properties and expenses of
the New Seabury development litigation. The increase in hotel and resort
operating expenses is primarily due to increased costs associated with increased
revenue at New Seabury. The decrease in interest expense is primarily due to
repayment of debt to affiliates in May of 2002 in connection with the Sands
repurchase obligation, as well as decreased interest rates prior to repayment.

Earnings from land, house and condominium operations increased in the six
months ended June 30, 2002 as compared to the same period in 2001. However, the
decrease in land inventory in approved sub-divisions is expected to negatively
impact earnings from this business segment unless mitigated by the purchase of
land, development and sale of units in approved sub-divisions.

As a result of the completion of Stratosphere's additional 1,000 rooms and
related amenities in June 2001, hotel and casino operating revenues and expenses
have increased. Increased room capacity provided more hotel guests thereby
increasing revenues. Management anticipates decreased hotel and casino operating
revenues in the third quarter of 2002, compared to the third quarter of 2001,
due to general economic conditions and increased competition from high-end
casino hotels. Management anticipates that fourth quarter 2002 hotel and casino
operating revenues may improve, as compared to the fourth quarter of 2001 which
was severely impacted by the September 11, 2001 terrorist attacks. As a result
of a new collective bargaining agreement, retroactive to June 1, 2002, payroll
and related expenses are expected to increase by $1 million for the remainder of
2002.

Earnings before property and securities transactions and minority interest
increased during the six months ended June 30, 2002 by $11,090,000 as compared
to the same period in 2001.

A provision for loss on real estate of $926,000 was recorded in the six
months ended June 30, 2002. There was no such provision in the comparable period
of 2001.

Gain on property transactions increased by $277,000 during the six months
ended June 30, 2002 as compared to the same period in 2001 due to the size and
number of transactions.

Gain on sale of marketable equity securities decreased by $1,334,000 during
the six months ended June 30, 2002 as compared to the same period in 2001 as
there were no such dispositions in 2002.

A write-down of equity securities available for sale of $8,476,000 was
recorded in the six months ended June 30, 2002. No such write-down was recorded
in the comparable period in 2001.

Minority interest in the net earnings of Stratosphere Corporation increased
by $199,000 during the six months ended June 30, 2002 as compared to the same
period in 2001 due to an increase in Stratosphere's net income.

Net earnings for the six months ended June 30, 2002 increased by $432,000 as
compared to the six months ended June 30, 2001 primarily due to increased
earnings from hotel and casino operations ($4.5 million), increased earnings
from land, house, and condominium sales ($4.3 million), reduced interest expense
($2.4 million), increased interest income ($2.3 million) and increased equity in
earnings of GB Holdings Inc. ($1.2 million) partially offset by a write-down of
equity securities available for sale ($8.5 million), increased depreciation and
amortization ($2.2 million), increased rental property

18

expenses ($1.3 million), decreased gain on marketable equity securities
($1.3 million) and decreased earnings from property transactions ($.6 million).

Diluted earnings per weighted average limited partnership unit outstanding
before property and security transactions were $.71 in the six months ended June
30, 2002 compared to $.52 in the comparable period of 2001, and net loss from
property and securities transactions was $.14 in the six months ended June 30,
2002 compared to a net gain of $.05 in the comparable period of 2001. Diluted
earnings per weighted average limited partnership unit outstanding totalled $.57
in the six months ended June 30, 2002 compared to $.57 in the comparable period
of 2001.

CAPITAL RESOURCES AND LIQUIDITY

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

The following table reflects the Company's contractual cash obligations due
over the indicated periods and when they expire (in $ millions):

In 2002, fourteen leases covering fourteen properties and representing
approximately $2.1 million in annual rentals are scheduled to expire. Seven
leases, originally representing approximately $916,000 in annual rental income,
were renewed for approximately $625,000 in annual rentals. Such renewals are
generally for a term of five years. Seven leases with annual rental income of
approximately $1,194,000 were not renewed and are currently being marketed for
sale or lease.

The Board of Directors of the General Partner announced that no
distributions on its Depositary Units are expected to be made in 2002. The
Company believes that it should continue to hold and invest, rather than
distribute, cash. In making its announcement, the Company noted it plans to
continue to apply available cash flow toward its operations, repayment of
maturing indebtedness, tenant requirements, other capital expenditures and cash
reserves for contingencies including environmental matters and scheduled lease
expirations. By the end of the year 2004, net leases representing approximately
15% of the Company's net annual rentals will be due for renewal, and by the end
of the year 2006, 35% of such rentals will be due for renewal. Another factor
that the Company took into consideration was that net leases representing
approximately 29% of the Company's annual rentals are with tenants in the retail
sector, some of which are currently experiencing cash flow difficulties and
restructurings.

During the six months ended June 30, 2002, the Company generated
approximately $32.1 million in cash flow from day-to-day operations which
excludes approximately $28.5 million in cash flow from the operations of
Bayswater and Stratosphere which are being retained for their operations.

Capital expenditures for real estate, excluding hotel and casino operating
property, were approximately $1.5 million during the six months ended June 30,
2002.

During the six months ended June 30, 2002, net cash flow after payment of
maturing debt obligations and capital expenditures was approximately $30.6
million which was added to the Company's operating cash reserves. This excludes
cash flow from Bayswater and Stratosphere which is being retained for their
operations. The Company's operating cash reserves are approximately $203 million
at June 30, 2002, (not including the cash from capital transactions or from the
1997 Offering which is being retained for investment). The current economic
conditions and the continuing terrorist

19

threat may decrease the Company's cash flow from rental and investment
activities requiring the use of cash reserves for (i) repayment of debt
obligations, (ii) tenant and other capital requirements and (iii) other
contingencies including environmental matters. Cash reserves may also be used
for real estate acquisitions and for other investments in order to further
diversify the Company's portfolio of assets.

In February 2002, the Company entered into a merger agreement with
Stratosphere under which, the Company, subject to certain conditions, will
acquire the remaining shares of Stratosphere that it does not currently own from
affiliates of Icahn and public shareholders for approximately $44.3 million.
This transaction is expected to be completed in the fourth quarter of 2002.

In May 2002, the Company was qualified as a holding company by the New
Jersey Casino Control Commission and repurchased its interests in the Sands from
affiliates of the General Partner, for approximately $69.1 million.

The Company's cash and cash equivalents and investment in U.S. Government
and Agency obligations decreased by $5.5 million during the six months ended
June 30, 2002, primarily due to repurchase of Sands interests ($69.1 million),
mezzanine loan advances ($20.6 million) and miscellaneous and other items ($3.5
million) partially offset by net cash flow from operations ($30.6 million), net
cash flow from Bayswater and Stratosphere operations ($28.5 million), mezzanine
loan repayments ($23 million) and property dispositions ($5.6 million).

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

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

The Company invests in U.S. Government and Agency obligations which are
subject to interest rate risk. As interest rates fluctuate, the Company will
experience changes in the fair value of these investments with maturities
greater than one year. If interest rates increased 100 basis points, the fair
value of these investments at June 30, 2002, would decline by approximately $2
million.

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS

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

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

a. On January 31, 2001, Stratosphere was named in an action styled Disabled
Rights Action Committee v. Stratosphere Gaming Corp., Case No. A430070, in the
Eighth Judicial District Court of the State of Nevada. The complaint alleges a
number of violations of the Americans with Disabilities Act ('ADA'), including
inadequate room selection, door widths and other similar items. Simultaneously
with the complaint, plaintiffs filed a Motion for Preliminary Injunction,
seeking to have construction halted on the new hotel tower until the property
fully complies with the ADA. Stratosphere removed the action to the United
States District Court in Nevada and it is now styled as Disabled Rights Action
Committee v. Stratosphere Gaming Corp., Case No. CV-S-01-0162-RLH (PAL).

The federal district court held a hearing on plaintiffs' Motion for
Preliminary Injunction and denied the motion, focusing upon what the Court
believed to be the plaintiffs' lack of irreparable injury. The federal district
court also granted Stratosphere's Motion to Dismiss the plaintiffs' state law
claims, leaving in place only the ADA claims. Stratosphere and the Plaintiffs
then filed Motions for Summary Judgement. The District Court granted and denied
in part each of the parties respective motions. The Court ordered that
Stratosphere must make certain renovations to 532 rooms that were opened in
1996. The Court issued an injunction requiring that these renovations be
completed by August 9, 2002. Stratosphere had already commenced these
renovations prior to the Court order and completed these renovations in June
2002. On April 5, 2002, plaintiffs filed a motion seeking attorney's fees of
approximately $50,000. Stratosphere has opposed the motion on the basis that the
fees sought are excessive. The court has yet to rule on plaintiffs' motion.

b. In January 2002, a regional planning body created in 1989, the Cape Cod
Commission concluded that the Company's New Seabury development is within its
jurisdiction. The proposed residential and commercial development is allowed
under a special permit issued for the property in 1964.

In February 2002, New Seabury Properties LLC, the Company's subsidiary and
owner of the property, filed a civil complaint in Barnstable County
Massachusetts Superior Court appealing the administrative decision by the Cape
Cod Commission. The Court has not yet rendered its decision. The Company cannot
predict the effect on the development process if it loses the appeal.

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

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

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

The Stratosphere Parties have evaluated the project and have determined that
the amount of $1,004,059 is properly due and payable to satisfy all claims for
the work performed, including the claim by Tiffiny. This amount has been
segregated in a separate interest bearing account. The Stratosphere Parties
intend to vigorously defend the action for claims in excess of $1,004,059.

21

d. In addition, in the ordinary course of business, the Company is party to
various legal actions. In management's opinion, the ultimate outcome of such
legal actions will not have a material effect on the results of operations or
the financial position of the Company.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits A-1 -- Certification of Principal Financial Officer
A-2 -- Certificaion of Principal Executive Officer

22

SIGNATURES

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

AMERICAN REAL ESTATE PARTNERS, L.P.

By: American Property Investors, Inc.

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

Date: August 14, 2002

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