<PAGE>   1

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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K
            [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998

                         COMMISSION FILE NUMBER 1-13603

                TE PRODUCTS PIPELINE COMPANY, LIMITED PARTNERSHIP
             (Exact name of Registrant as specified in its charter)

                DELAWARE                               76-0329620
(State of Incorporation or Organization) (I.R.S. Employer Identification Number)


                               2929 ALLEN PARKWAY
                                  P.O. BOX 2521
                            HOUSTON, TEXAS 77252-2521
          (Address of principal executive offices, including zip code)

                                 (713) 759-3636
              (Registrant's telephone number, including area code)

           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

                                                        NAME OF EACH EXCHANGE ON
          TITLE OF EACH CLASS                              WHICH REGISTERED
6.45% Senior Notes, due January 15, 2008                New York Stock Exchange
7.51% Senior Notes, due January 15, 2028                New York Stock Exchange

        Securities registered pursuant to Section 12(g) of the Act: NONE

         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 twelve 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 [ ]

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]



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<PAGE>   2


                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                        PART I
<S>    <C>                                                                                                        <C>
ITEMS  1.  Business and Properties..................................................................................1
  AND  2.
ITEM   3.  Legal Proceedings.......................................................................................10
ITEM   4.  Submission of Matters to a Vote of Security Holders.....................................................10

                                                        PART II

ITEM   5.  Market for Registrant's Common Equity and Related Partnership Interest Matters..........................10
ITEM   6.  Selected Financial Data ................................................................................11
ITEM   7.  Management's Discussion and Analysis of Financial Condition and Results of Operations...................12
ITEM  7A.  Quantitative and Qualitative Disclosures About Market Risks.............................................19
ITEM   8.  Financial Statements and Supplementary Data.............................................................19
ITEM   9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure....................19

                                                       PART III

ITEM  10.  Directors and Executive Officers of the Registrant......................................................19
ITEM  11.  Executive Compensation..................................................................................21
ITEM  12.  Security Ownership of Certain Beneficial Owners and Management..........................................26
ITEM  13.  Certain Relationships and Related Transactions..........................................................27

                                                        PART IV

ITEM  14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K.........................................28
</TABLE>






                                               i




<PAGE>   3

ITEMS 1 AND 2. BUSINESS AND PROPERTIES

GENERAL

         TE Products Pipeline Company, Limited Partnership, (the "Partnership"),
a Delaware limited partnership, was formed in March 1990. TEPPCO Partners, L.P.
(the "Parent Partnership") owns a 98.9899% interest as the sole limited partner
interest and Texas Eastern Products Pipeline Company (the "Company" or "General
Partner") owns a 1.0101% general partner interest in the Partnership. The
General Partner performs all management and operating functions required for the
Partnership.

         On June 18, 1997, PanEnergy Corp ("PanEnergy") and Duke Power Company
completed a previously announced merger. At closing, the combined companies
became Duke Energy Corporation ("Duke Energy"). The Company, previously a
wholly-owned subsidiary of PanEnergy, became an indirect wholly-owned subsidiary
of Duke Energy on the date of the merger.

         Effective March 31, 1998, TEPPCO Colorado, LLC ("TEPPCO Colorado"), a
wholly owned subsidiary of the Partnership, purchased two fractionation
facilities located in Weld County, Colorado, from Duke Energy Field Services,
Inc. ("DEFS"), a wholly-owned subsidiary of Duke Energy. The transaction was
accounted for under the purchase method of accounting.

         The Partnership is one of the largest pipeline common carriers of
refined petroleum products and LPGs in the United States. The Partnership owns
and operates an approximate 4,300-mile pipeline system (together with the
receiving, storage and terminaling facilities mentioned below, the "Pipeline
System" or "Pipeline" or "System") extending from southeast Texas through the
central and midwestern United States to the northeastern United States. The
Pipeline System includes delivery terminals for outloading product to other
pipelines, tank trucks, rail cars or barges, as well as substantial storage
capacity at Mont Belvieu, Texas, the largest LPGs storage complex in the United
States, and at other locations. The Partnership also owns two marine receiving
terminals, one near Beaumont, Texas, and the other at Providence, Rhode Island.
The Providence terminal is not physically connected to the Pipeline. As an
interstate common carrier, the Pipeline System offers interstate transportation
services, pursuant to tariffs filed with the Federal Energy Regulatory
Commission ("FERC"), to any shipper of refined petroleum products and LPGs who
requests such services, provided that the products tendered for transportation
satisfy the conditions and specifications contained in the applicable tariff. In
addition to the revenues received by the Pipeline System from its interstate
tariffs, it also receives revenues from the shuttling of LPGs between refinery
and petrochemical facilities on the upper Texas Gulf Coast and ancillary
transportation, storage and marketing services at key points along the System.
Substantially all the petroleum products transported and stored in the Pipeline
System are owned by the Partnership's customers. Petroleum products are received
at terminals located principally on the southern end of the Pipeline System,
stored, scheduled into the Pipeline in accordance with customer nominations and
shipped to delivery terminals for ultimate delivery to the final distributor
(e.g., gas stations and retail propane distribution centers) or to other
pipelines. Pipelines are generally the lowest cost method for intermediate and
long-haul overland transportation of petroleum products. The Pipeline System is
the only pipeline that transports LPGs to the Northeast.

         The Partnership's business depends in large part on (i) the level of
demand for refined petroleum products and LPGs in the geographic locations
served by it and (ii) the ability and willingness of customers having access to
the Pipeline System to supply such demand by deliveries through the System. The
Partnership cannot predict the impact of future fuel conservation measures,
alternate fuel requirements, governmental regulation, technological advances in
fuel economy and energy-generation devices, all of which could reduce the demand
for refined petroleum products and LPGs in the areas served by the Partnership.


                                        1

<PAGE>   4

OPERATIONS

         The Partnership conducts business and owns properties located in 13
states. Operations consist of interstate transportation, storage and terminaling
of petroleum products; short-haul shuttle transportation of LPGs at the Mont
Belvieu, Texas complex; sale of product inventory; fractionation of natural gas
liquids (effective March 31, 1998); and other ancillary services. Products are
transported in liquid form from the upper Texas Gulf Coast through two parallel
underground pipelines that extend to Seymour, Indiana. From Seymour, segments of
the Pipeline System extend to the Chicago, Illinois; Lima, Ohio; Selkirk, New
York; and Philadelphia, Pennsylvania, areas. The Pipeline System east of
Todhunter, Ohio, is dedicated solely to LPGs transportation and storage
services.

         The Pipeline System includes 30 storage facilities with an aggregate
storage capacity of 13 million barrels of refined petroleum products and 38
million barrels of LPGs, including storage capacity leased to outside parties.
The Pipeline System makes deliveries to customers at 55 locations including 19
Partnership owned truck racks, rail car facilities and marine facilities.
Deliveries to other pipelines occur at various facilities owned by the
Partnership or by third parties.

PIPELINE SYSTEM

         The Pipeline System is comprised of a 20-inch diameter line extending
in a generally northeasterly direction from Baytown, Texas (located
approximately 30 miles east of Houston), to a point in southwest Ohio near
Lebanon and Todhunter. A second line, which also originates at Baytown, is 16
inches in diameter until it reaches Beaumont, Texas, at which point it reduces
to a 14-inch diameter line. This second line extends along the same path as the
20-inch diameter line to the Pipeline System's terminal in El Dorado, Arkansas,
before continuing as a 16-inch diameter line to Seymour, Indiana. The Pipeline
System also has smaller diameter lines that extend laterally from El Dorado to
Helena and Arkansas City, Arkansas, from Tyler, Texas, to El Dorado and from
McRae, Arkansas, to West Memphis, Arkansas. The lines from El Dorado to Helena
and Arkansas City have 10-inch diameters. The line from Tyler to El Dorado
varies in diameter from 8 inches to 10 inches. The line from McRae to West
Memphis has a 12-inch diameter. The Pipeline System also includes a 14-inch
diameter line from Seymour, Indiana, to Chicago, Illinois, and a 10-inch
diameter line running from Lebanon to Lima, Ohio. This 10-inch diameter pipeline
connects to the Buckeye Pipe Line Company system that serves, among others,
markets in Michigan and eastern Ohio. Also, the Pipeline System has a 6-inch
diameter pipeline connection to the Greater Cincinnati/Northern Kentucky
International Airport and a 8-inch diameter pipeline connection to the George
Bush Intercontinental Airport, Houston. In addition, there are numerous smaller
diameter lines associated with the gathering and distribution system.

         The Pipeline System continues eastward from Todhunter, Ohio, to
Greensburg, Pennsylvania, at which point it branches into two segments, one
ending in Selkirk, New York (near Albany), and the other ending at Marcus Hook,
Pennsylvania (near Philadelphia). The Pipeline east of Todhunter and ending in
Selkirk is an 8-inch diameter line, whereas the line starting at Greensburg and
ending at Marcus Hook varies in diameter from 6 inches to 8 inches. East of
Todhunter, Ohio, the Partnership transports only LPGs through the Pipeline.

         The Pipeline System has been constructed and is in general compliance
with applicable federal, state and local laws and regulations, and accepted
industry standards and practices. The Partnership performs regular maintenance
on all the facilities of the Pipeline System and has an ongoing process of
inspecting segments of the Pipeline System and making repairs and replacements
when necessary or appropriate. In addition, the Partnership conducts periodic
air patrols of the Pipeline System to monitor pipeline integrity and third-party
right of way encroachments.

MAJOR MARKETS

         The Pipeline System's major operations are the transportation, storage
and terminaling of refined petroleum products and LPGs along its mainline
system, and the storage and short-haul transportation of LPGs associated with


                                        2

<PAGE>   5


its Mont Belvieu operations. Product deliveries, in millions of barrels (MMBbls)
on a regional basis, over the last three years were as follows:

<TABLE>
<CAPTION>
                                                   PRODUCT DELIVERIES (MMBbls)
                                                    YEARS ENDED DECEMBER 31,
                                                  ----------------------------
                                                   1998       1997       1996
                                                  ------     ------     ------
<S>                                               <C>        <C>        <C> 
Refined Products Transportation:
      Central (1) ...........................       71.5       69.4       66.9
      Midwest (2) ...........................       34.8       29.9       28.7
      Ohio and Kentucky .....................       24.2       20.7       19.7
                                                  ------     ------     ------
          Subtotal ..........................      130.5      120.0      115.3
                                                  ------     ------     ------
LPGs Mainline Transportation:
      Central, Midwest and Kentucky (1)(2) ..       18.5       23.8       24.6
      Ohio and Northeast (3) ................       13.5       18.2       17.0
                                                  ------     ------     ------
          Subtotal ..........................       32.0       42.0       41.6
                                                  ------     ------     ------
Mont Belvieu Operations:
      LPGs ..................................       25.1       27.8       22.5
                                                  ------     ------     ------
          Total Product Deliveries ..........      187.6      189.8      179.4
                                                  ======     ======     ======
</TABLE>
----------------

(1) Arkansas, Louisiana, Missouri and Texas.

(2) Illinois and Indiana.

(3) New York and Pennsylvania.

         The mix of products delivered varies seasonally, with gasoline demand
generally stronger in the spring and summer months and LPGs demand generally
stronger in the fall and winter months. Weather and economic conditions in the
geographic areas served by the Pipeline System also affect the demand for and
the mix of the products delivered.

         Refined products and LPGs deliveries over the last three years were as
follows:

<TABLE>
<CAPTION>
                                                PRODUCT DELIVERIES (MMBbls)
                                                 YEARS ENDED DECEMBER 31,
                                               ----------------------------
                                                1998       1997       1996
                                               ------     ------     ------
<S>                                           <C>        <C>        <C> 
Refined Products Transportation:
      Gasoline ...........................       74.0       66.8       65.4
      Jet Fuels ..........................       23.8       22.4       20.7
      Middle Distillates(1) ..............       26.1       24.0       23.2
      MTBE/Toluene .......................        6.6        6.8        6.0
                                               ------     ------     ------
          Subtotal .......................      130.5      120.0      115.3
                                               ------     ------     ------
LPGs Mainline Transportation:
      Propane ............................       25.5       34.7       35.2
      Butanes ............................        6.5        7.3        6.4
                                               ------     ------     ------
          Subtotal .......................       32.0       42.0       41.6
                                               ------     ------     ------
Mont Belvieu Operations:
      LPGs ...............................       25.1       27.8       22.5
                                               ------     ------     ------
          Total Product Deliveries .......      187.6      189.8      179.4
                                               ======     ======     ======
</TABLE>

----------------
(1) Primarily diesel fuel, heating oil and other middle distillates.



                                       3

<PAGE>   6

     Refined Petroleum Products Transportation

         The Pipeline System transports refined petroleum products from the
upper Texas Gulf Coast, eastern Texas and southern Arkansas to the Central and
Midwest regions of the United States with deliveries in Texas, Louisiana,
Arkansas, Missouri, Illinois, Kentucky, Indiana and Ohio. At these points,
refined petroleum products are delivered to Partnership-owned terminals,
connecting pipelines and customer-owned terminals. The volume of refined
petroleum products transported by the Pipeline System is directly affected by
the demand for such products in the geographic regions the System serves. Such
market demand varies based upon the different end uses to which the refined
products deliveries are applied. Demand for gasoline, which accounts for a
substantial portion of the volume of refined products transported through the
Pipeline System, depends upon price, prevailing economic conditions and
demographic changes in the markets served. Demand for refined products used in
agricultural operations is affected by weather conditions, government policy and
crop prices. Demand for jet fuel depends upon prevailing economic conditions and
military usage.

         Effective January 1, 1996, the Clean Air Act Amendments of 1990
mandated the use of reformulated gasolines in nine metropolitan areas of the
United States, including the Houston and Chicago areas served by the System. A
portion of the reformulated and oxygenated gasolines includes methyl tertiary
butyl ether ("MTBE") as a major blending component. The Partnership has invested
in modifications to the System needed to allow the Partnership to achieve
increased revenues from the transportation and storage of MTBE as well as other
blending components used in the production of reformulated gasolines.

     LPGs Mainline Transportation

         The Pipeline System transports LPGs from the upper Texas Gulf Coast to
the Central, Midwest and Northeast regions of the United States. The Pipeline
System east of Todhunter, Ohio, is devoted solely to the transportation of LPGs.
Since LPGs demand is generally stronger in the winter months, the Pipeline
System often operates near capacity during such time. Propane deliveries are
generally sensitive to the weather and meaningful year-to-year variations have
occurred and will likely continue to occur.

         The Partnership's ability to serve markets in the Northeast is enhanced
by its propane import terminal at Providence, Rhode Island. This facility
includes a 400,000-barrel refrigerated storage tank along with ship unloading
and truck loading facilities. Although the terminal is operated by the
Partnership, the utilization of the terminal is committed by contract to a major
propane marketer through May 2001.

     Mont Belvieu LPGs Storage and Pipeline Shuttle

         A key aspect of the Pipeline System's LPGs business is its storage and
pipeline asset base in the Mont Belvieu, Texas, complex serving the
fractionation, refining and petrochemical industries. The complex is the largest
of its kind in the United States and provides substantial capacity and
flexibility in the transportation, terminaling and storage of natural gas
liquids, LPGs and olefins.

         The Partnership has approximately 33 million barrels of LPGs storage
capacity, including storage capacity leased to outside parties, at the Mont
Belvieu complex. The Partnership's Mont Belvieu short-haul transportation
shuttle system, consisting of a complex system of pipelines and interconnects,
ties Mont Belvieu to virtually every refinery and petrochemical facility on the
upper Texas Gulf Coast.

     Product Sales and Other

         The Partnership also derives revenue from the sale of product
inventory, terminaling activities and other ancillary services associated with
the transportation and storage of refined petroleum products and LPGs.


                                       4

<PAGE>   7

         Effective March 31, 1998, operations also included fractionation of
NGLs. NGL fractionation involves the separation of NGLs from processed natural
gas into individual components (primarily ethane, propane, butanes and natural
gasoline). The Partnership's two fractionator facilities are located in Weld
County, Colorado. The Greeley Fractionator has a capacity of 378,000 gallons per
day. The Spindle Fractionator has a capacity of 126,000 gallons per day.
Effective with the purchase of the fractionation facilities, TEPPCO Colorado
entered into a twenty-year Fractionation Agreement, under which TEPPCO Colorado
receives a variable fee for all fractionated volumes delivered to DEFS. TEPPCO
Colorado and DEFS also entered into a Operation and Maintenance Agreement,
whereby DEFS operates and maintains the fractionation facilities. For these
services, TEPPCO Colorado pays DEFS a set volumetric rate for all fractionated
volumes delivered to DEFS. Revenues recognized from the fractionation facilities
totaled $5.5 million from April 1, 1998 through December 31, 1998. All such
revenue was received from DEFS pursuant to the Fractionation Agreement.

CUSTOMERS

         The Pipeline System's customers for the transportation of refined
petroleum products include major integrated oil companies, independent oil
companies and wholesalers. End markets for these deliveries are primarily (i)
retail service stations, (ii) truck stops, (iii) agricultural enterprises, (iv)
refineries (for MTBE and other blend stocks), and (v) military and commercial
jet fuel users.

         Propane shippers include wholesalers and retailers who, in turn, sell
to commercial, industrial, agricultural and residential heating customers, as
well as utilities who use propane as a fuel source. Refineries constitute the
Partnership's major customers for butane and isobutane, which are used as a
blend stock for gasolines and as a feed stock for alkylation units,
respectively.

         At December 31, 1998, the Partnership had approximately 140 customers.
Transportation revenues (and percentage of total revenues) attributable to the
top 10 shippers were $90 million (42%), $85 million (38%), and $81 million (38%)
for the years ended December 31, 1998, 1997 and 1996, respectively. During 1998,
billings to Marathon Ashland, LLC, a major integrated oil company, accounted for
approximately 10% of the Partnership's revenues. During 1997 and 1996, no single
customer accounted for greater than 10% of the Partnership's total revenues.
Loss of a business relationship with a significant customer could have an
adverse affect on the consolidated financial position, results of operations and
liquidity of the Partnership.

COMPETITION

         The Pipeline System conducts operations without the benefit of
exclusive franchises from government entities. Interstate common carrier
transportation services are provided through the System pursuant to tariffs
filed with the FERC.

         Because pipelines are generally the lowest cost method for intermediate
and long-haul overland movement of refined petroleum products and LPGs, the
Pipeline System's most significant competitors (other than indigenous production
in its markets) are pipelines in the areas where the Pipeline System delivers
products. Competition among common carrier pipelines is based primarily on
transportation charges, quality of customer service and proximity to end users.
The General Partner believes the Partnership is competitive with other pipelines
serving the same markets; however, comparison of different pipelines is
difficult due to varying product mix and operations.

         Trucks, barges and railroads competitively deliver products in some of
the areas served by the Pipeline System. Trucking costs, however, render that
mode of transportation less competitive for longer hauls or larger volumes.
Barge fees for the transportation of refined products are generally lower than
the Partnership's tariffs. The Partnership faces competition from rail movements
of LPGs in several geographic areas. The most significant area is the Northeast,
where rail movements of propane from Sarnia, Canada, compete with propane moved
on the Pipeline System.



                                       5

<PAGE>   8

TITLE TO PROPERTIES

         The Partnership believes it has satisfactory title to all of its
assets. Such properties are subject to liabilities in certain cases, such as
customary interests generally contracted in connection with acquisition of the
properties, liens for taxes not yet due, easements, restrictions, and other
minor encumbrances. The Partnership believes none of these liabilities
materially affects the value of such properties or the Partnership's interest
therein or will materially interfere with their use in the operation of the
Partnership's business.

CAPITAL EXPENDITURES

         Capital expenditures by the Partnership were $22.7 million for the year
ended December 31, 1998. This amount includes capitalized interest of $0.8
million. Approximately $1.6 million was used for revenue-generating projects and
$20.3 million was used for System integrity projects and for sustaining existing
operations of the Partnership.

         In February 1999, the Partnership announced plans to construct three
new pipelines between the Partnership's terminal in Mont Belvieu, Texas and Port
Arthur, Texas. The project includes three 12-inch diameter common-carrier
pipelines and associated facilities. Each pipeline will be approximately 70
miles in length. Upon completion, the new pipelines will transport ethylene,
propylene and natural gasoline. The anticipated completion date is the fourth
quarter of 2000. The cost of this project is expected to total approximately $72
million. Approximately $43 million is expected to be incurred in 1999, with the
remainder in 2000. The Partnership expects the majority of this project will be
financed through external borrowings.

         The Partnership estimates that the remaining capital expenditures for
1999 will be approximately $20 million. Substantially all such expenditures are
expected to be used for life-cycle replacements and to upgrade current
facilities. The Partnership revises capital spending periodically in response to
changes in cash flows and operations.

REGULATION

         The Partnership's interstate common carrier pipeline operations are
subject to rate regulation by the FERC under the Interstate Commerce Act
("ICA"), the Energy Policy Act of 1992 ("Act") and rules and orders promulgated
pursuant thereto. FERC regulation requires that interstate oil pipeline rates be
posted publicly and that these rates be "just and reasonable" and
nondiscriminatory.

         Rates of interstate oil pipeline companies, like the Partnership, are
currently regulated by FERC primarily through an index methodology, whereby a
pipeline is allowed to change its rates based on the change from year-to-year in
the Producer Price Index for finished goods less 1% ("PPI Index"). In the
alternative, interstate oil pipeline companies may elect to support rate filings
by using a cost-of-service methodology, competitive market showings ("Market
Based Rates") or agreements between shippers and the oil pipeline company that
the rate is acceptable. With one immaterial exception, the Partnership has used
the index methodology since the adoption thereof in 1996. The Partnership is
considering requesting the FERC to allow the Partnership to utilize Market Based
Rates for interstate shipments of refined petroleum products, while maintaining
the index methodology for rates governing interstate shipments of LPGs. The
Partnership does not believe that the adoption of Market Based Rates will have a
material impact on the Partnership, since the Partnership's current rates are
highly influenced by competitive factors, but Market Based Rates will provide
the Partnership with rate flexibility.

         In a June 1996 decision, the FERC disallowed the inclusion of imputed
income taxes in the cost-of-service tariff filing of Lakehead Pipeline Company,
Limited Partnership ("Lakehead"), an unrelated oil pipeline limited partnership.
The FERC's decision held that Lakehead was entitled to include an income tax
allowance in its cost-of-service for income attributable to corporate partners
but not on income attributable to individual partners. In 1997, Lakehead reached
an agreement with its shippers on all contested rates and withdrew its appeal of
the June 


                                        6

<PAGE>   9

1996 decision. In January 1999, in another FERC proceeding, SFPP, L.P., the FERC
followed its decision in Lakehead and held that SFPP may claim an income tax
allowance with respect to income attributable to SFPP, Inc.'s general
partnership interest and income attributable to corporations holding publicly
traded limited partnership interests, but not for income attributable to
non-corporate limited partners, both individuals and other entities. The
decision also disallowed the income tax allowance attributable to SFPP, Inc.'s
limited partnership interest under facts peculiar to the way SFPP held its
limited partnership interests. Neither the FERC's decision in Lakehead nor the
Administrative Law Judge's initial decision in SFPP, L.P. affects the
Partnership's current rates and rate structure because the Partnership uses the
index methodology to support its rates. However, the Lakehead and SFPP decisions
might become relevant to the Partnership should it (i) elect in the future to
use the cost-of-service methodology or (ii) be required to use such methodology
to defend its indexed rates against a shipper protest alleging that an indexed
rate increase substantially exceeds actual cost increases. Should such
circumstances arise, there can be no assurance with respect to the effect of
such precedents on the Partnership's rates in view of the uncertainties involved
in this issue.

ENVIRONMENTAL MATTERS

         The operations of the Partnership are subject to federal, state and
local laws and regulations relating to protection of the environment. Although
the Partnership believes its operations are in material compliance with
applicable environmental regulations, risks of significant costs and liabilities
are inherent in pipeline operations, and there can be no assurance that
significant costs and liabilities will not be incurred. Moreover, it is possible
that other developments, such as increasingly strict environmental laws and
regulations and enforcement policies thereunder, and claims for damages to
property or persons resulting from its operations, could result in substantial
costs and liabilities to the Partnership.

     Water

         The Federal Water Pollution Control Act of 1972, as renamed and amended
as the Clean Water Act ("CWA"), imposes strict controls against the discharge of
oil and its derivatives into navigable waters. The CWA provides penalties for
any discharges of petroleum products in reportable quantities and imposes
substantial potential liability for the costs of removing an oil or hazardous
substance spill. State laws for the control of water pollution also provide
varying civil and criminal penalties and liabilities in the case of a release of
petroleum or its derivatives in surface waters or into the groundwater. Spill
prevention control and countermeasure requirements of federal laws require
appropriate containment berms and similar structures to help prevent the
contamination of navigable waters in the event of a petroleum tank spill,
rupture or leak.

         Contamination resulting from spills or release of refined petroleum
products is an inherent risk within the petroleum pipeline industry. To the
extent that groundwater contamination requiring remediation exists along the
Pipeline System as a result of past operations, the Partnership believes any
such contamination could be controlled or remedied without having a material
adverse effect on the financial condition of the Partnership, but such costs are
site specific, and there can be no assurance that the effect will not be
material in the aggregate.

         The primary federal law for oil spill liability is the Oil Pollution
Act of 1990 ("OPA"), which addresses three principal areas of oil pollution --
prevention, containment and cleanup, and liability. It applies to vessels,
offshore platforms, and onshore facilities, including terminals, pipelines and
transfer facilities. In order to handle, store or transport oil, shore
facilities are required to file oil spill response plans with the appropriate
agency being either the United States Coast Guard, the United States Department
of Transportation Office of Pipeline Safety ("OPS") or the Environmental
Protection Agency ("EPA"). Numerous states have enacted laws similar to OPA.
Under OPA and similar state laws, responsible parties for a regulated facility
from which oil is discharged may be liable for removal costs and natural
resources damages. The General Partner believes that the Partnership is in
material compliance with regulations pursuant to OPA and similar state laws.


                                       7

<PAGE>   10

         The EPA has adopted regulations that require the Partnership to have
permits in order to discharge certain storm water run-off. Storm water discharge
permits may also be required by certain states in which the Partnership
operates. Such permits may require the Partnership to monitor and sample the
effluent. The General Partner believes that the Partnership is in material
compliance with effluent limitations at existing facilities.

     Air Emissions

         The operations of the Partnership are subject to the federal Clean Air
Act and comparable state and local statutes. The Clean Air Act Amendments of
1990 (the "Clean Air Act") will require most industrial operations in the United
States to incur future capital expenditures in order to meet the air emission
control standards that are to be developed and implemented by the EPA and state
environmental agencies during the next decade. Pursuant to the Clean Air Act,
any Partnership facilities that emit volatile organic compounds or nitrogen
oxides and are located in ozone non-attainment areas will face increasingly
stringent regulations, including requirements that certain sources install the
reasonably available control technology. The EPA is also required to promulgate
new regulations governing the emissions of hazardous air pollutants. Some of the
Partnership's facilities are included within the categories of hazardous air
pollutant sources which will be affected by these regulations. The Partnership
does not anticipate that changes currently required by the Clean Air Act
hazardous air pollutant regulations will have a material adverse effect on the
Partnership.

         The Clean Air Act also introduced the new concept of federal operating
permits for major sources of air emissions. Under this program, one federal
operating permit (a "Title V" permit) is issued. The permit acts as an umbrella
that includes all other federal, state and local preconstruction and/or
operating permit provisions, emission standards, grandfathered rates, and record
keeping, reporting, and monitoring requirements in a single document. The
federal operating permit is the tool that the public and regulatory agencies use
to review and enforce a site's compliance with all aspects of clean air
regulation at the federal, state and local level. The Partnership has completed
applications for all twelve facilities for which such regulations apply, and has
received the final permit for three facilities.

     Solid Waste

         The Partnership generates hazardous and non-hazardous solid wastes that
are subject to requirements of the federal Resource Conservation and Recovery
Act ("RCRA") and comparable state statutes. Amendments to RCRA require the EPA
to promulgate regulations banning the land disposal of all hazardous wastes
unless the wastes meet certain treatment standards or the land-disposal method
meets certain waste containment criteria. In 1990, the EPA issued the Toxicity
Characteristic Leaching Procedure, which substantially expanded the number of
materials defined as hazardous waste. Certain wastewater and other wastes
generated from the Partnership's business activities previously classified as
nonhazardous are now classified as hazardous due to the presence of dissolved
aromatic compounds. The Partnership utilizes waste minimization and recycling
processes and has installed pre-treatment facilities to reduce the volume of its
hazardous waste. The Partnership currently has three active on-site waste water
treatment facilities. Operating expenses of these facilities have not had a
material adverse effect on the financial position or results of operations of
the Partnership.

     Superfund

         The Comprehensive Environmental Response, Compensation and Liability
Act ("CERCLA"), also known as "Superfund," imposes liability, without regard to
fault or the legality of the original act, on certain classes of persons who
contributed to the release of a "hazardous substance" into the environment.
These persons include the owner or operator of a facility and companies that
disposed or arranged for the disposal of the hazardous substances found at a
facility. CERCLA also authorizes the EPA and, in some instances, third parties
to take actions in response to threats to the public health or the environment
and to seek to recover from the responsible classes of persons the costs they
incur. In the course of its ordinary operations, the Pipeline System generates
wastes that may fall within CERCLA's definition of a "hazardous substance."
Should a disposal facility previously used by the Partnership 


                                       8

<PAGE>   11

require clean up in the future, the Partnership may be responsible under CERCLA
for all or part of the costs required to clean up sites at which such wastes
have been disposed.

         The Company was notified by the EPA in the fall of 1998 that it might
have potential liability for waste material allegedly disposed by the Company at
the Casmalia Disposal Site in Santa Barbara County, California. The EPA has
offered the Company a de minimus settlement offer of $0.3 million to settle
liability associated with the Company's alleged involvement. The Company
believes based on the information furnished by the EPA that it has been
erroneously named as an entity that disposed of waste material at the Casmalia
Disposal Site. The Company intends to continue to vigorously pursue dismissal
from this matter.

     Other Environmental Proceedings

         The Partnership and the Indiana Department of Environmental Management
("IDEM") have entered into an Agreed Order that will ultimately result in a
remediation program for any on-site and off-site groundwater contamination
attributable to the Partnership's operations at the Seymour, Indiana, terminal.
A Feasibility Study, which includes the Partnership's proposed remediation
program, has been approved by IDEM. IDEM will issue a Record of Decision
formally approving the remediation program. After the Record of Decision has
been issued, the Partnership will enter into an Agreed Order for the continued
operation and maintenance of the program. The Partnership estimates that the
costs of the remediation program being proposed by the Partnership for the
Seymour terminal will not exceed the amount accrued therefore (approximately
$0.8 million at December 31, 1998). In the opinion of the Company, the
completion of the remediation program being proposed by the Partnership, if such
program is approved by IDEM, will not have a material adverse impact on the
Partnership's financial condition, results of operations or liquidity.

         The Partnership received a compliance order from the Louisiana
Department of Environmental Quality ("DEQ") during 1994 relative to potential
environmental contamination at the Partnership's Arcadia, Louisiana facility,
which may be attributable to the operations of the Partnership and adjacent
petroleum terminals of other companies. The Partnership and all adjacent
terminals have been assigned to the Groundwater Division of DEQ, in which a
consolidated plan will be developed. The Partnership has finalized a negotiated
Compliance Order with DEQ that will allow the Partnership to continue with a
remediation plan similar to the one previously agreed to by DEQ and implemented
by the Company. In the opinion of the General Partner, the completion of the
remediation program being proposed by the Partnership will not have a future
material adverse impact on the Partnership.

SAFETY REGULATION

         The Partnership is subject to regulation by the United States
Department of Transportation ("DOT") under the Hazardous Liquid Pipeline Safety
Act of 1979 ("HLPSA") and comparable state statutes relating to the design,
installation, testing, construction, operation, replacement and management of
its pipeline facilities. HLPSA covers petroleum and petroleum products and
requires any entity that owns or operates pipeline facilities to comply with
such regulations, to permit access to and copying of records and to make certain
reports and provide information as required by the Secretary of Transportation.
The Partnership believes it is in material compliance with HLPSA requirements.

         The Partnership is also subject to the requirements of the federal
Occupational Safety and Health Act ("OSHA") and comparable state statutes. The
Partnership believes it is in material compliance with OSHA and state
requirements, including general industry standards, record keeping requirements
and monitoring of occupational exposures.

         The OSHA hazard communication standard, the EPA community right-to-know
regulations under Title III of the federal Superfund Amendment and
Reauthorization Act, and comparable state statutes require the Partnership to
organize and disclose information about the hazardous materials used in its
operations. Certain parts of this information must be reported to employees,
state and local governmental authorities, and local citizens upon request. In
general, the Partnership expects to increase its expenditures during the next
decade to comply with 


                                       9

<PAGE>   12

higher industry and regulatory safety standards such as those described above.
Such expenditures cannot be accurately estimated at this time, although the
General Partner does not believe that they will have a future material adverse
impact on the Partnership.

         The Partnership is subject to OSHA Process Safety Management ("PSM")
regulations which are designed to prevent or minimize the consequences of
catastrophic releases of toxic, reactive, flammable, or explosive chemicals.
These regulations apply to any process which involves a chemical at or above the
specified thresholds; or any process which involves a flammable liquid or gas,
as defined in the regulations, stored on site in one location, in a quantity of
10,000 pounds or more. The Partnership utilizes certain covered processes and
maintains storage of LPGs in pressurized tanks, caverns and wells in excess of
10,000 pounds at various locations. Flammable liquids stored in atmospheric
tanks below their normal boiling point without benefit of chilling or
refrigeration are exempt. The Partnership believes it is in material compliance
with the PSM regulations.

EMPLOYEES

         The Partnership does not have any employees, officers or directors. The
General Partner is responsible for the management of the Partnership. As of
December 31, 1998, the General Partner had 515 employees.

ITEM 3. LEGAL PROCEEDINGS

         The Partnership has been, in the ordinary course of business, a
defendant in various lawsuits and a party to various legal proceedings, some of
which are covered in whole or in part by insurance. The General Partner believes
that the outcome of such lawsuits and other proceedings will not individually or
in the aggregate have a material adverse effect on the Partnership's financial
condition, operations or cash flows.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        NONE

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED PARTNERSHIP INTEREST
        MATTERS

         TEPPCO Partners, L.P. owns a 98.9899% interest as the sole limited
partner interest and Texas Eastern Products Pipeline Company owns a 1.0101%
general partner interest in the Partnership. There is no established public
trading market for the Partnership ownership interests.

         The Partnership makes quarterly cash distributions of its Available
Cash, as defined by the Partnership Agreements. Available Cash consists
generally of all cash receipts less cash disbursements and cash reserves
necessary for working capital, anticipated capital expenditures and
contingencies the General Partner deems appropriate and necessary.

         The Partnership is a limited partnership that is not subject to federal
income tax. Instead, the partners are required to report their allocable share
of the Partnership's income, gain, loss, deduction and credit, regardless of
whether the Partnership makes distributions.



                                       10

<PAGE>   13


ITEM 6. SELECTED FINANCIAL DATA

         The following tables set forth, for the periods and at the dates
indicated, selected consolidated financial and operating data for the
Partnership. The financial data was derived from the consolidated financial
statements of the Partnership and should be read in conjunction with the
Partnership's audited consolidated financial statements included in the Index to
Financial Statements on page F-1 of this report. See also Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

<TABLE>
<CAPTION>
                                                                             YEARS ENDED DECEMBER 31,
                                                    --------------------------------------------------------------------------
                                                       1998            1997            1996            1995            1994
                                                    ----------      ----------      ----------      ----------      ----------
                                                            (IN THOUSANDS, EXCEPT PER UNIT AMOUNTS AND OPERATING DATA)
<S>                                                 <C>             <C>             <C>             <C>             <C>       
INCOME STATEMENT DATA:
   Operating revenues:
      Transportation -- refined products .........  $  119,854      $  107,304      $   98,641      $   96,190      $   89,442
      Transportation -- LPGs .....................      60,902          79,371          80,219          70,576          73,458
      Mont Belvieu operations ....................      10,880          12,815          11,811          13,570          12,290
      Other ......................................      20,147          22,603          25,354          23,380          22,112
                                                    ----------      ----------      ----------      ----------      ----------
       Total operating revenues ..................     211,783         222,093         216,025         203,716         197,302
   Operating expenses ............................     107,102         106,771         105,182         103,938          94,337
   Depreciation and amortization .................      26,040          23,772          23,409          23,286          23,063
                                                    ----------      ----------      ----------      ----------      ----------
   Operating income ..............................      78,641          91,550          87,434          76,492          79,902
   Interest expense -- net .......................     (28,982)        (32,229)        (33,534)        (34,987)        (36,076)
   Other income -- net ...........................       2,873           2,604           5,346           5,689           3,189
                                                    ----------      ----------      ----------      ----------      ----------
   Income before extraordinary item ..............      52,532          61,925          59,246          47,194          47,015
   Extraordinary loss on debt extinguishment(1) ..     (73,509)             --              --              --              --
                                                    ----------      ----------      ----------      ----------      ----------
   Net income (loss) .............................  $  (20,977)     $   61,925      $   59,246      $   47,194      $   47,015
                                                    ==========      ==========      ==========      ==========      ==========
BALANCE SHEET DATA (AT PERIOD END):
   Property, plant and equipment -- net ..........  $  567,566      $  567,681      $  561,068      $  533,470      $  540,577
   Total assets ..................................     696,486         673,909         671,241         669,915         665,331
   Long-term debt (net of current maturities) ....     427,722         309,512         326,512         339,512         349,512
   Partners' capital .............................     228,138         306,060         293,274         279,202         272,350
CASH FLOW DATA:
   Net cash from operations ......................  $   83,915      $   83,604      $   86,121      $   78,456      $   70,082
   Capital expenditures ..........................     (22,710)        (32,931)        (51,264)        (25,967)        (20,826)
   Cash investments -- net .......................       2,357          18,860           4,148           6,527         (41,776)
   Distributions .................................     (56,774)        (49,042)        (45,174)        (40,342)        (34,720)
</TABLE>


-------------------
(1) Extraordinary item reflects the loss related to the early extinguishment of
    the First Mortgage Notes on January 27, 1998.










                                       11


<PAGE>   14


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

GENERAL

         The following information is provided to facilitate increased
understanding of the 1998, 1997 and 1996 consolidated financial statements and
accompanying notes of the Partnership included in the Index to Financial
Statements on page F-1 of this report. Material period-to-period variances in
the consolidated statements of income are discussed under "Results of
Operations." The "Financial Condition and Liquidity" section analyzes cash flows
and financial position. Discussion included in "Other Matters" addresses key
trends, future plans and contingencies. Throughout these discussions, management
addresses items that are reasonably likely to materially affect future liquidity
or earnings.

         The Partnership is involved in the transportation, storage and
terminaling of petroleum products and the fractionation of NGLs. Revenues are
derived from the transportation of refined products and LPGs, the storage and
short-haul shuttle transportation of LPGs at the Mont Belvieu, Texas, complex,
sale of product inventory and other ancillary services. Labor and electric power
costs comprise the two largest operating expense items of the Partnership.
Operations are somewhat seasonal with higher revenues generally realized during
the first and fourth quarters of each year. Refined products volumes are
generally higher during the second and third quarters because of greater demand
for gasolines during the spring and summer driving seasons. LPGs volumes are
generally higher from November through March due to higher demand in the
Northeast for propane, a major fuel for residential heating.

RESULTS OF OPERATIONS

         For the year ended December 31, 1998, the Partnership reported a net
loss of $21.0 million. The net loss included an extraordinary loss for early
extinguishment of debt of $73.5 million. Excluding the extraordinary loss, net
income for the year would have been $52.5 million, compared with net income of
$61.9 million for 1997. The $9.4 million decrease in income before loss on debt
extinguishment resulted primarily from a $12.9 million decrease in operating
income, partially offset by a $3.2 million decrease in interest expense, net of
capitalized interest.

         Net income for the year ended December 31, 1997 increased 5% to $61.9
million, compared with net income of $59.2 million for the year ended December
31, 1996. The increase in net income resulted from a $6.1 million increase in
operating revenues and a $1.3 million decrease in interest expense, net of
capitalized interest. These increases were partially offset by a $2.0 million
increase in costs and expenses, and a $2.7 million decrease in other income -
net. See discussion below of factors affecting net income for the comparative
periods.

   Volume and average tariff information for 1998, 1997 and 1996 is presented
below:

<TABLE>
<CAPTION>
                                                                                             PERCENTAGE
                                                                                              INCREASE
                                                      YEARS ENDED DECEMBER 31,               (DECREASE)
                                                ----------------------------------     -----------------------
                                                  1998         1997         1996         1998           1997
                                                --------     --------     --------     --------       --------
                                                         (IN THOUSANDS, EXCEPT TARIFF INFORMATION)
<S>                                            <C>          <C>          <C>           <C>            <C>
Volumes Delivered
   Refined products .......................      130,467      119,971      115,262            9%             4%
   LPGs ...................................       32,048       41,991       41,640          (24%)            1%
   Mont Belvieu operations ................       25,072       27,869       22,522          (10%)           24%
                                                --------     --------     --------     --------       --------
      Total ...............................      187,587      189,831      179,424           (1%)            6%
                                                ========     ========     ========     ========       ========

Average Tariff per Barrel
   Refined products .......................     $   0.92     $   0.89     $   0.86            3%             3%
   LPGs ...................................         1.90         1.89         1.93            1%            (2%)
   Mont Belvieu operations ................         0.16         0.15         0.17            7%           (12%)
      Average system tariff per barrel ....     $   0.98     $   1.00     $   1.02           (2%)           (2%)
                                                ========     ========     ========     ========       ========
</TABLE>



                                       12

<PAGE>   15

   1998 Compared to 1997

         Operating revenues for the year ended 1998 decreased 5% to $211.8
million from $222.1 million for the year ended 1997. This $10.3 million decrease
resulted from an $18.5 million decrease in LPGs transportation revenues, a $2.5
million decrease in other operating revenues and a $1.9 million decrease in
revenues generated from Mont Belvieu operations, partially offset by a $12.6
million increase in refined products transportation revenues.

         Refined products transportation revenues increased $12.6 million for
the year ended December 31, 1998, compared with the prior year, as a result of
the 9% increase in volumes delivered and a 3% increase in the refined products
average tariff per barrel. The 9% increase in volumes delivered in 1998 was
attributable to (i) favorable Midwest price differentials for motor fuel,
distillate, jet fuel and natural gasoline; and (ii) the full-period impact of
capacity expansions of the mainline System between El Dorado, Arkansas, and
Seymour, Indiana, the Ark-La-Tex System between Shreveport, Louisiana, and El
Dorado, and the connection to the Colonial pipeline at Beaumont, Texas. The 3%
increase in the refined products average tariff per barrel reflects new tariff
structures for volumes transported on the expanded portion of the Ark-La-Tex
system and barrels originating from the pipeline connection with Colonial's
pipeline.

         LPGs transportation revenues decreased $18.5 million for the year ended
December 31, 1998, compared with the prior year, due to a 24% decrease in
volumes delivered, partially offset by a 1% increase in the LPGs average tariff
per barrel. Propane revenues decreased $16.7 million, or 25%, from the prior
year primarily due to decreased propane deliveries in the Midwest and Northeast
market areas attributable to warmer winter and spring weather during 1998 and
unfavorable differentials versus competing Canadian product. Butane revenues
decreased $1.7 million, or 13%, from the prior year due primarily to unfavorable
blending economics in the Midwest and termination of a throughput agreement
during the second quarter of 1998. Decreased petrochemical demand along the
upper Texas Gulf Coast resulted in a 32% decrease in short-haul propane
deliveries. The 1% increase in the LPGs average tariff per barrel resulted from
an increase in 1998 of the ratio of long-haul to short-haul propane deliveries.

         Revenues generated from Mont Belvieu operations decreased $1.9 million
for the year ended December 31, 1998, compared with the prior year, primarily
due to lower storage revenue, lower product receipt charges and decreased
propane dehydration fees. Additionally, Mont Belvieu shuttle deliveries
decreased 10% during the year ended 1998, compared with the prior year, due to
lower petrochemical and refinery demand for LPGs along the upper Texas Gulf
Coast. The decrease in the Mont Belvieu shuttle deliveries was largely offset by
a 7% increase in the average tariff per barrel attributable to a lower
percentage in 1998 of contract deliveries, which generally carry lower tariffs.

         Other operating revenues decreased $2.5 million during the year ended
December 31, 1998, compared with 1997, primarily due to decreased product
inventory volumes sold, unfavorable product location exchange differentials
incurred to position system inventory, lower amounts of butane received in the
Midwest for summer storage and decreased terminaling revenues. These decreases
were partially offset by $5.5 million of operating revenues from the
fractionator facilities acquired on March 31, 1998.

         Costs and expenses increased $2.6 million during the year ended
December 31, 1998, compared with the prior year, due to a $3.7 million increase
in operating, general and administrative expenses and a $2.3 million increase in
depreciation and amortization charges, partially offset by a $3.0 million
decrease in operating fuel and power expense and a $0.4 million decrease in
taxes - other than income. The increase in operating, general and administrative
expenses was primarily attributable to $3.4 million of expense to write down the
book-value of product inventory to market-value, credits of $3.0 million
recorded during 1997 for insurance recovery of past litigation costs related to
the Seymour terminal, a $0.9 million increase in expenses related to Year 2000
activities, $0.6 million of expense related to the fractionator facilities
acquired on March 31, 1998, and increased product measurement losses. These
increases in operating, general and administrative expenses were partially
offset by 


                                       13

<PAGE>   16

expenses recorded for environmental remediation at the Partnership's Seymour,
Indiana, terminal in the third quarter of 1997, and lower supplies and services
related to pipeline operations and maintenance. Depreciation and amortization
expense increased as a result of amortization of the value assigned to the
Fractionation Agreement beginning on March 31, 1998, and capital additions
placed in service. Operating fuel and power expense decreased from the prior
year due primarily to increased mainline pumping efficiencies, lower long-haul
LPGs volumes and lower summer peak power rates in Arkansas.

         Interest expense decreased $3.9 million during the year ended December
31, 1998, compared with 1997, as a result of the repayment on January 27, 1998
of the remaining $326.5 million principal balance of the First Mortgage Notes,
partially offset by interest expense on the $390.0 million principal amount of
the Senior Notes issued on January 27, 1998, and interest expense on the $38.0
million term-loan used to finance the purchase of the fractionation assets on
March 31, 1998. The weighted average interest rate of the $326.5 million
principal amount of the First Mortgage Notes was 10.09%, compared with the
weighted average interest rate of the $390.0 million principal amount of the
Senior Notes of 7.02%. The interest rate on the $38.0 million term loan is
6.53%. Interest capitalized decreased $0.7 million from the prior year as a
result of lower construction balances related to capital projects.

         Other income - net increased during the year ended December 31, 1998,
compared with the prior year, as a result of a $0.4 million gain on the sale of
non-carrier assets in June 1998 and a $0.5 million loss on the sale of
non-carrier assets in August 1997. These factors were partially offset by lower
interest income earned on cash investments in 1998.

    1997 Compared to 1996

         Operating revenues for the year ended 1997 increased 3% to $222.1
million from $216.0 million for the year ended 1996. This $6.1 million increase
resulted from a $8.7 million increase in refined products transportation
revenues and a $1.0 million increase in revenues generated from Mont Belvieu
operations, partially offset by a $0.8 million decrease in LPGs transportation
revenues and a $2.7 million decrease in other operating revenues.

         Refined products transportation revenues increased $8.7 million for the
year ended December 31, 1997, compared with the prior year, as a result of the
4% increase in volumes delivered and a 3% increase in the refined products
average tariff per barrel. The 4% increase in volumes delivered in 1997 was
attributable to the capacity expansion of the mainline System between El Dorado,
Arkansas, and Seymour, Indiana, which was completed during the first quarter of
1997; capacity expansion of the Ark-La-Tex System between Shreveport, Louisiana,
and El Dorado, which was placed in service on March 31, 1997; and the connection
to the Colonial pipeline, which was placed in service on May 1, 1997. Also, jet
fuel deliveries increased to 22.4 million barrels due to a full year of
deliveries to the United States Air Force Base near Little Rock, Arkansas, which
was completed in June 1996, as well as higher demand from commercial airlines in
the Midwest. Distillate and natural gasoline deliveries increased during 1997 as
a result of higher demand in the Midwest market area. MTBE deliveries at the
marine terminal near Beaumont, Texas increased in 1997 as a result of higher
production along the upper Texas Gulf Coast. The 3% increase in the refined
products average tariff per barrel in 1997 was primarily attributable to new
tariff structures for volumes transported on the Ark-La-Tex System and volumes
originating from the Colonial pipeline connection.

         LPGs transportation revenues decreased $0.8 million for the year ended
December 31, 1997, compared with the prior year, due to a 2% decrease in the
LPGs average tariff per barrel, partially offset by a 1% increase in volumes
delivered. Long-haul propane deliveries were lower than in the prior year
because of warmer winter weather in the Northeast during the first and fourth
quarters of 1997. These decreases were partially offset by stronger demand for
butane as a refinery feedstock due to the resumption during the second quarter
of 1997 of operations at a Northeast refinery that was shut down during early
1996. Increased petrochemical demand along the upper Texas Gulf Coast resulted
in a 17% increase in short-haul propane deliveries. The 2% decrease in the LPGs
average tariff per barrel resulted from an increase in 1997 of the ratio of
short-haul to long-haul propane deliveries.



                                       14

<PAGE>   17

         Revenues generated from Mont Belvieu operations increased $1.0 million
for the year ended December 31, 1997, compared with the prior year, due
primarily to higher terminaling fees on butane received into the system,
increased propane dehydration fees and higher petrochemical demand for LPGs
along the upper Texas Gulf Coast. The decrease in the Mont Belvieu operations
average tariff per barrel was due to a higher percentage in 1997 of contract
deliveries, which generally carry lower tariffs.

         Other operating revenues decreased $2.7 million during the year ended
December 31, 1997, compared with 1996, as a result of lower volumes of product
sold in 1997, lower propane imports at the Partnership's marine terminal at
Providence, Rhode Island, reduced refined products storage volumes and
write-downs of product inventory values as a result of higher volumes of product
blends in 1997. These decreases were partially offset by increased terminaling
revenues.

         Costs and expenses increased $2.0 million during the year ended
December 31, 1997, compared with the prior year, due to a $2.4 million
throughput-related increase in operating fuel and power expense, a $1.0 million
increase in taxes - other than income taxes and a $0.4 million increase in
depreciation and amortization charges, partially offset by a $1.8 million
decrease in operating, general and administrative expenses. The increase in
taxes - other than income taxes, was due primarily to higher property tax
assessments in 1997 and increased sales taxes in 1997. The decrease in
operating, general and administrative expenses was primarily attributable to
credits of $3.0 million recorded during 1997 for insurance reimbursement of past
litigation costs related to the Seymour terminal, decreased outside service
costs for System maintenance and lower product measurement losses in 1997. The
decrease in operating, general and administrative expenses was partially offset
by increased labor and benefits expense and rental expense of the Colonial
capacity lease.

         Interest expense decreased $1.2 million during the year ended December
31, 1997, compared with 1996, due to the $13.0 million principal payment on the
First Mortgage Notes in March 1997. Interest capitalized increased $0.1 million
over the prior year as a result of higher construction balances related to
capital projects, which commenced during 1996, and were completed during 1997.

         Other income - net decreased during the year ended December 31, 1997,
compared with the prior year, due primarily to lower interest income earned on
cash balances as a result of lower cash balances during 1997, and a $0.5 million
loss recorded on the sale of the Partnership's Arkansas City, Arkansas,
terminal.

FINANCIAL CONDITION AND LIQUIDITY

         Net cash from operations for the year ended December 31, 1998, totaled
$83.9 million, comprised primarily of $78.6 million of income before
extraordinary loss on early extinguishment of debt and charges for depreciation
and amortization, and $5.3 million of cash provided from working capital
changes. This compares with cash flows from operations of $83.6 million for the
year ended 1997, which was comprised of $85.7 million of income before charges
for depreciation and amortization, partially offset by $2.1 million used for
working capital changes. The increase in cash provided by working capital
changes in 1998, as compared to the prior year, was primarily attributable to
collection of receivable balances. Net cash from operations for the year ended
December 31, 1996 totaled $86.1 million, which was comprised of $82.7 million of
income before charges for depreciation and amortization and $3.4 million of cash
provided by other working capital changes. Net cash from operations includes
interest payments of $27.0 million, $33.6 million and $34.7 million for each of
the years ended 1998, 1997 and 1996, respectively.

         The Partnership routinely invests excess cash in liquid investments as
part of its cash management program. Investments of cash in discounted
commercial paper and Eurodollar time deposits with original maturities at date
of purchase of 90 days or less are included in cash and cash equivalents.
Short-term investments of cash consist of investment-grade corporate notes with
maturities during 1999. Long-term investments are comprised of investment-grade
corporate notes with varying maturities between 2000 and 2003. Interest income
earned on all investments is included in cash from operations. Cash flows from
investing activities included proceeds from investments of $3.1 million, $25.0
million and $18.6 million for each of the years ended 1998, 1997 and 1996,
respectively. Cash flows from investing activities also included additional
investments of $0.7 million, $6.2 million and $14.4 million for each of the
years ended 1998, 1997 and 1996, 


                                       15

<PAGE>   18

respectively. Cash balances related to the investment of cash and proceeds from
the investment of cash were $46.5 million, $56.1 million and $65.0 million for
the years ended December 31, 1998, 1997 and 1996, respectively.

         Capital expenditures totaled $22.7 million for the year ended December
31, 1998, compared with capital expenditures of $32.9 million for the year ended
December 31, 1997. The decrease in 1998 reflects lower spending for
revenue-generating projects due to higher construction costs incurred in 1997
for completion of expansion projects started in 1996. Such projects included the
replacement of approximately 54 miles of an 8-inch diameter line with a 10-inch
diameter line between Shreveport, Louisiana, and El Dorado, Arkansas, which was
placed in service on March 31, 1997; pipeline modifications to increase mainline
capacity by 50,000 barrels per day between El Dorado and Seymour, Indiana, which
was completed during the first quarter of 1997; and expenditures to complete the
pipeline connection to Colonial Pipeline Company's ("Colonial") pipeline at
Beaumont, Texas, which was placed in service on May 1, 1997. Capital
expenditures for 1996 totaled $51.3 million. The large amount of capital
expenditures in 1996 related to the projects identified above. Capital
expenditures for System integrity projects and for sustaining existing
operations totaled $20.3 million, $18.9 million and $12.1 million for each of
the years ended 1998, 1997 and 1996, respectively.

         The Partnership makes quarterly cash distributions of all of its
Available Cash, generally defined as consolidated cash receipts less
consolidated cash disbursements and cash reserves established by the general
partner in its sole discretion or as required by the terms of the Notes.
Generally, distributions are made 98.9899% to the Parent Partnership and 1.0101%
to the general partner. For the years ended December 31, 1998, 1997 and 1996,
cash distributions totaled $56.8 million, $49.0 million and $45.2 million,
respectively. The distribution increases reflect the Partnership's success in
improving cash flow levels. On February 5, 1999, the Partnership paid a cash
distribution of $14.7 million for the quarter ended December 31, 1998.

         On January 27, 1998, the Partnership completed the issuance of $180
million principal amount of 6.45% Senior Notes due 2008, and $210 million
principal amount of 7.51% Senior Notes due 2028 (collectively the "Senior
Notes"). The 6.45% Senior Notes due 2008 are not subject to redemption prior to
January 15, 2008. The 7.51% Senior Notes due 2028 may be redeemed at any time
after January 15, 2008, at the option of the Partnership, in whole or in part,
at a premium. Net proceeds from the issuance of the Senior Notes totaled
approximately $386 million and was used to repay in full the $61.0 million
principal amount of the 9.60% Series A First Mortgage Notes, due 2000, and the
$265.5 million principal amount of the 10.20% Series B First Mortgage Notes, due
2010. The premium for the early redemption of the First Mortgage Notes totaled
$70.1 million. The repayment of the First Mortgage Notes and the issuance of the
Senior Notes reduced the level of cash required for debt service until 2008. The
Partnership recorded an extraordinary charge of $73.5 million during the first
quarter of 1998, which represents the redemption premium of $70.1 million and
unamortized debt issue costs related to the First Mortgage Notes of $3.4
million.

         The Senior Notes do not have sinking fund requirements. Interest on the
Senior Notes is payable semiannually in arrears on January 15 and July 15 of
each year. The Senior Notes are unsecured obligations of the Partnership and
will rank on a parity with all other unsecured and unsubordinated indebtedness
of the Partnership. The indenture governing the Senior Notes contains covenants,
including, but not limited to, covenants limiting (i) the creation of liens
securing indebtedness and (ii) sale and leaseback transactions. However, the
indenture does not limit the Partnership's ability to incur additional
indebtedness.

         In connection with the purchase of the fractionation assets from DEFS
as of March 31, 1998, TEPPCO Colorado received a $38 million bank loan from
SunTrust Bank. Proceeds from the loan were received on April 21, 1998. The loan
bears interest at a rate of 6.53%, which is payable quarterly. The principal
balance of the loan is payable in full on April 21, 2001.
The Partnership is guarantor on the loan.



                                       16

<PAGE>   19

OTHER MATTERS

     Regulatory and Environmental

         The operations of the Partnership are subject to federal, state and
local laws and regulations relating to protection of the environment. Although
the Partnership believes the operations of the Pipeline System are in material
compliance with applicable environmental regulations, risks of significant costs
and liabilities are inherent in pipeline operations, and there can be no
assurance that significant costs and liabilities will not be incurred. Moreover,
it is possible that other developments, such as increasingly strict
environmental laws and regulations and enforcement policies thereunder, and
claims for damages to property or persons resulting from the operations of the
Pipeline System, could result in substantial costs and liabilities to the
Partnership. The Partnership does not anticipate that changes in environmental
laws and regulations will have a material adverse effect on its financial
position, operations or cash flows in the near term.

         The Partnership and the Indiana Department of Environmental Management
("IDEM") have entered into an Agreed Order that will ultimately result in a
remediation program for any on-site and off-site groundwater contamination
attributable to the Partnership's operations at the Seymour, Indiana, terminal.
A Feasibility Study, which includes the Partnership's proposed remediation
program, has been approved by IDEM. IDEM will issue a Record of Decision
formally approving the remediation program. After the Record of Decision has
been issued, the Partnership will enter into an Agreed Order for the continued
operation and maintenance of the program. The Partnership estimates that the
costs of the remediation program being proposed by the Partnership for the
Seymour terminal will not exceed the amount accrued therefore (approximately
$0.8 million at December 31, 1998). In the opinion of the Company, the
completion of the remediation program being proposed by the Partnership, if such
program is approved by IDEM, will not have a material adverse impact on the
Partnership's financial condition, results of operations or liquidity.

     Year 2000 Issues

         In 1997, the Company initiated a program to prepare the Partnership's
process controls and business computer systems for the "Year 2000" issue.
Process controls are the automated equipment including hardware and software
systems which run operational activities. Business computer systems are the
computer hardware and software used by the Partnership. The Partnership is
utilizing both internal and external resources to identify, test, remediate or
replace all non-compliant computerized systems and applications. The Company
continues to evaluate appropriate courses of corrective action, including
replacement of certain systems whose associated costs would be recorded as
assets and amortized. The Partnership incurred approximately $1.3 million of
expense during 1997 and 1998 related to the Year 2000 issue. The Company
estimates the remaining amounts required to address the Year 2000 issue will be
approximately $4.0 million. A portion of such costs would have been incurred as
part of normal system and application upgrades. In certain cases, the timing of
expenditures has been accelerated due to the Year 2000 issue. Although the
Company believes this estimate to be reasonable, due to the complexities of the
Year 2000 issue, there can be no assurance that the actual costs to address the
Year 2000 issue will not be significantly greater.

         The Partnership has adopted a three-phase Year 2000 program consisting
of: Phase I Preliminary Assessment; Phase II - Detailed Assessment and
Remediation Planning; and Phase III - Remediation Activities and Testing. The
Partnership has completed Phase I; Phase II is nearing completion; and Phase III
is ongoing. Remediation Activities and Testing for systems deemed most critical
are scheduled to be completed by mid-1999, with testing of all process controls
and business computer systems completed during the third quarter of 1999.

         With respect to its third-party relationships, the Partnership has
contacted its suppliers and service providers to assess their state of Year 2000
readiness. Information continues to be updated regularly, thus the Partnership
anticipates receiving additional information in the near future that will assist
in determining the extent to which the Partnership may be vulnerable to those
third parties' failure to remediate their Year 2000 issues. However, there can
be no assurance that the systems of other companies, on which the Partnership's
systems rely, 



                                       17

<PAGE>   20

will be timely converted, or converted in a manner that is compatible with the
Partnership's systems, or that any such failures by other companies would not
have a material adverse effect on the Partnership.

         Despite the Partnership's efforts to address and remediate its Year
2000 issue, there can be no assurance that all process controls and business
computer systems will continue without interruption through January 1, 2000 and
beyond. The complexity of identifying and testing all embedded microprocessors
that are installed in hardware throughout the pipeline system used for process
or flow control, transportation, security, communication and other systems may
result in unforeseen operational failures. Although the amount of potential
liability and lost revenue cannot be estimated, failures that result in
substantial disruptions of business activities could have a material adverse
effect on the Partnership. In order to mitigate potential disruptions, the
Partnership will complete contingency plans for its critical systems, processes
and external relationships by mid-fourth quarter of 1999.

     Other

         During June 1997, the Partnership filed rate increases on selective
refined products tariffs and LPGs tariffs, averaging 1.7%. These rate increases
became effective July 1, 1997 without suspension or refund obligation. On July
1, 1998, general rate decreases of 0.62% for both refined products tariffs and
LPGs tariffs became effective. The rate decreases were calculated pursuant to
the index methodology promulgated by the FERC.

         In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes standards for
and disclosures of derivative instruments and hedging activities. This statement
is effective for fiscal years beginning after June 15, 1999. The Partnership
does not expect the adoption of this statement to have a material impact on its
financial condition or results of operations.

         In February 1999, the Partnership announced plans to construct three
new pipelines between the Partnership's terminal in Mont Belvieu, Texas and Port
Arthur, Texas. The project includes three 12-inch diameter common-carrier
pipelines and associated facilities. Each pipeline will be approximately 70
miles in length. Upon completion, the new pipelines will transport ethylene,
propylene and natural gasoline. The anticipated completion date is the fourth
quarter of 2000. The cost of this project is expected to total approximately $72
million. Approximately $43 million is expected to be incurred in 1999, with the
remainder in 2000. The Partnership expects the majority of this project will be
financed through external borrowings.

         The matters discussed herein include "forward-looking statements"
within the meaning of various provisions of the Securities Act of 1933 and the
Securities Exchange Act of 1934. All statements, other than statements of
historical facts, included in this document that address activities, events or
developments that the Partnership expects or anticipates will or may occur in
the future, including such things as estimated future capital expenditures
(including the amount and nature thereof), business strategy and measures to
implement strategy, competitive strengths, goals, expansion and growth of the
Partnership's business and operations, plans, references to future success,
references to intentions as to future matters and other such matters are
forward-looking statements. These statements are based on certain assumptions
and analyses made by the Partnership in light of its experience and its
perception of historical trends, current conditions and expected future
developments as well as other factors it believes are appropriate under the
circumstances. However, whether actual results and developments will conform
with the Partnership's expectations and predictions is subject to a number of
risks and uncertainties, including general economic, market or business
conditions, the opportunities (or lack thereof) that may be presented to and
pursued by the Partnership, competitive actions by other pipeline companies,
changes in laws or regulations, and other factors, many of which are beyond the
control of the Partnership. Consequently, all of the forward-looking statements
made in this document are qualified by these cautionary statements and there can
be no assurance that actual results or developments anticipated by the
Partnership will be realized or, even if realized, that they will have the
expected consequences to or effect on the Partnership or its business or
operations.



                                       18


<PAGE>   21

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

         At December 31, 1998, the Partnership's had outstanding $180 million
principal amount of 6.45% Senior Notes due 2008, and $210 million principal
amount of 7.51% Senior Notes due 2028 (collectively the "Senior Notes").
Additionally, the Partnership's had a $38 million bank loan outstanding from
SunTrust Bank. The SunTrust loan bears interest at a fixed rate of 6.53% and is
payable in full in April 2001. At December 31, 1998, the estimated fair value of
the Senior Notes and the SunTrust loan was approximately $406.6 million and
$39.3 million, respectively.

         The Partnership periodically enters into futures contracts to hedge its
exposure to price risk on product inventory transactions. Recognized gains and
losses related to futures contracts which qualify as hedges are recognized in
income when the related inventory transactions are completed. Gains and losses
related to futures contracts, to the extent settled in cash, are reported as a
component of product inventory in the consolidated balance sheet until
recognized as income. At December 31, 1998, there were no outstanding futures
contracts.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The consolidated financial statements of the Partnership, together with
the independent auditors' report thereon of KPMG LLP, begin on page F-1 of this
report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

        NONE

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The Partnership does not have directors or officers. Set forth below is
certain information concerning the directors and executive officers of the
General Partner. All directors of the General Partner are elected annually by
Duke Energy. All officers serve at the discretion of the directors.

         William L. Thacker, age 53, was elected a director of the General
Partner in 1992 and Chairman of the Board in October 1997. Mr. Thacker was
elected President and Chief Operating Officer in September 1992 and Chief
Executive Officer in January 1994. Prior to joining the Company, Mr. Thacker was
President of Unocal Pipeline Company from 1986 until 1992.

         Fred J. Fowler, age 53, is Vice Chairman of the Board of the General
Partner and is Chairman of the Compensation Committee. He was elected a director
in November 1998. Mr. Fowler is group president, energy transmission of Duke
Energy. Mr. Fowler joined PanEnergy in 1985 and served in a variety of positions
in marketing, transportation and exchange. He was appointed group vice president
of PanEnergy in 1996.

         Richard J. Osborne, age 48, was elected a director of the General
Partner in October 1998. Mr. Osborne is executive vice president and chief
financial officer of Duke Energy. He previously served as vice president and
chief financial officer of Duke Energy from 1991 to 1997. Mr. Osborne joined
Duke Energy in 1975.

         Jim W. Mogg, age 50, was elected a director of the General Partner in
October 1997. Mr. Mogg is president and chief executive officer of Duke Energy
Field Services, Inc. Mr. Mogg was previously president of Centana Energy
Corporation and senior vice president for Panhandle Eastern Pipe Line Company.
Mr. Mogg joined Panhandle Eastern Pipe Line Company in 1973.


                                       19

<PAGE>   22

         Ruth G. Shaw, age 51, was elected a director of the General Partner in
December 1997. Ms. Shaw is executive vice president and chief administrative
officer of Duke Energy. Ms. Shaw joined Duke Power Company in 1992 as vice
president of corporate communications. In April 1994, she was elected senior
vice president, corporate resources and chief administrative officer. Ms. Shaw
is a director of First Union Corp. and Avado Brands, Inc.

         Carl D. Clay, age 66, is a director of the General Partner and a member
of the Compensation and Audit Committees. He was elected in January 1995. Mr.
Clay retired from Marathon Oil Company in 1994 after 33 years during which he
served as director of transportation and logistics and president of Marathon
Pipe Line Company.

         Derrill Cody, age 60, is a director of the General Partner having been
elected in 1989. He is the Chairman of the Audit Committee and serves on the
Compensation Committee of the General Partner. Mr. Cody is presently of counsel
to McKinney, Stringer & Webster, P.C., which represents Duke Energy in certain
matters. He is also an advisor to Duke Energy pursuant to a personal contract.
Mr. Cody served as Chief Executive Officer of Texas Eastern Gas Pipeline Company
from 1987 to 1989. Mr. Cody is also a director of Barrett Resources Corporation.

         John P. DesBarres, age 59, is a director of the General Partner, having
been elected in May 1995. He is a member of the Compensation and Audit
Committees. Mr. DesBarres was formerly chairman, president and chief executive
officer of Transco Energy Company from 1992 to 1995. He joined Transco in 1991
as president and chief executive officer. Prior to joining Transco, Mr.
DesBarres served as chairman, president and chief executive officer for Santa Fe
Pacific Pipelines, Inc. from 1988 to 1991.

         Milton Carroll, age 49, was elected a director of the General Partner
in November 1997 and is a member of the Compensation and Audit Committees. Mr.
Carroll founded and has been president and chief executive officer of Instrument
Products, Inc., a manufacturer of oil field tools and other precision products,
since 1977. Mr. Carroll is a director of Reliant Energy, Seagull Energy Corp.,
and Blue Cross Blue Shield of Texas.

         Charles H. Leonard, age 50, is Senior Vice President, Chief Financial
Officer and Treasurer of the General Partner. Mr. Leonard joined the Company in
1988 as Vice President and Controller. In November 1989, he was elected Vice
President and Chief Financial Officer. He was elected Senior Vice President in
March 1990, and Treasurer in October 1996.

         James C. Ruth, age 51, is Vice President, General Counsel and Secretary
of the General Partner, having been elected in 1991. He was elected as Secretary
in 1998. Mr. Ruth was Vice President and Assistant General Counsel of the
General Partner from 1989 to 1991.

         Thomas R. Harper, age 58, is Vice President, Product Transportation and
Refined Products Marketing of the General Partner. Mr. Harper joined the Company
in 1987 as Director of Product Transportation, and was elected to his present
position in 1988.

         David L. Langley, age 51, is Vice President, Business Development and
LPG Services of the General Partner. Mr. Langley has been with the Company in
various managerial positions since 1975 and was elected Vice President, LPG
Business Center, in 1988. He was elected to his current position in 1990.

         O. Horton Cunningham, age 50, is Vice President, Technical Services, of
the General Partner, having been elected in October 1996. Mr. Cunningham served
as Vice President, Operations, from 1990 until October 1996. Mr. Cunningham
joined the Company in 1987 as Manager of Environmental Affairs and was promoted
to Director of Safety and Environmental Affairs in 1988 and Director of
Engineering and Compliance in 1989.

         Ernest P. Hagan, age 54, is Vice President, Operations, of the General
Partner, having been elected in October 1996. Mr. Hagan was previously Director
of Engineering and Right-of-Way from 1994 until October 1996, and from 1986
until 1994 he was Region Manager of the Southwest Region. Mr. Hagan joined the
Company in 1971.


                                       20

<PAGE>   23

         Sharon S. Stratton, age 60, is Vice President, Human Resources of the
General Partner, having been elected in January 1999. Ms. Stratton served as
Director, Human Resources of the General Partner from 1992 to 1998. She
previously served in a variety of human resource positions with PanEnergy. Ms.
Stratton joined PanEnergy in 1976.

         J. Michael Cockrell, age 52, is Vice President of the General Partner,
having been elected in January 1999. Mr. Cockrell also serves as President of
TEPPCO Crude Oil, LLC ("TCO"). He joined PanEnergy in 1987 and served in a
variety of positions in supply and development, including president of Duke
Energy Transport and Trading Company.

         William S. Dickey, age 41, is Vice President of the General Partner,
having been elected in January 1999. Mr. Dickey also serves as Senior Vice
President and Chief Financial Officer of TCO. He previously served as vice
president and chief financial officer of Duke Energy Field Services from 1994 to
1998. Mr. Dickey joined PanEnergy in 1987.

         Based on information furnished to the Company and written
representation that no other reports were required, to the Company's knowledge,
all applicable Section 16(a) filing requirements were complied with during the
year ended December 31, 1998, except that one such report covering one
transaction in Limited Partner Units of the Parent Partnership was filed late by
Ruth G. Shaw.

ITEM 11. EXECUTIVE COMPENSATION

         The officers of the General Partner manage and operate the
Partnership's business. The Partnership does not directly employ any of the
persons responsible for managing or operating the Partnership's operations, but
instead reimburses the General Partner for the services of such persons.

         Directors of the General Partner who are neither officers nor employees
of either the Company or Duke Energy receive a stipend of $15,000 per annum,
$750 for attendance at each meeting of the Board of Directors, $750 for
attendance at each meeting of a committee of the Board of Directors and
reimbursement of expenses incurred in connection with attendance at a meeting of
the Board of Directors or a committee of the Board of Directors. Each outside
director who serves as chairman of a committee of the Board of Directors
receives an additional stipend of $2,000 per annum.

         Messrs. Thacker, Fowler, Mogg and Osborne and Ms. Shaw were not
compensated for their services as directors, and it is not anticipated that any
compensation for service as a director will be paid in the future to directors
who are full-time employees of Duke Energy, the General Partner or any of their
affiliates.

         The following table reflects cash compensation paid or accrued by the
General Partner for the years ended December 31, 1998, 1997 and 1996, with
respect to its Chief Executive Officer and the executive officers (collectively,
the "Named Executive Officers").







                                       21

<PAGE>   24



                                   SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                   LONG TERM COMPENSATION
                                                                                 ---------------------------
                                                                                     AWARDS       PAYOUTS
                                           ANNUAL COMPENSATION         OTHER     ------------- -------------
                                       ----------------------------    ANNUAL     SECURITIES    LTICP AND     ALL OTHER
         NAME AND                                            BONUS  COMPENSATION  UNDERLYING    1994 LTIP    COMPENSATION
    PRINCIPAL POSITION                 YEAR    SALARY($)     ($)(1)    ($)(2)    OPTIONS(#)(3) PAYOUTS($)(4)   ($)(5)
    ------------------                 ----    ---------    -------   -------    ------------- -------------  -------
<S>                                   <C>      <C>          <C>     <C>          <C>           <C>           <C>
William L. Thacker ...............     1998     250,000      86,400      77,114      39,000     148,858      24,666
     Chairman, President and           1997     237,708      98,200      78,551       8,800     358,168      21,529
     Chief Executive Officer           1996     224,667     107,500      79,988          --     113,447      19,723

Charles H. Leonard ...............     1998     149,333      39,200      14,820      12,000      95,331      13,406
Senior Vice President, Chief           1997     145,750      52,000      29,985          --      25,444      12,960
    Financial Officer and              1996     142,958      54,800      35,691          --      16,094      12,780
    Treasurer

James C. Ruth ....................     1998     138,333      36,200      38,557      12,000      41,095      15,079
    Vice President and                 1997     134,333      46,000      39,276          --      27,901      14,968
    General Counsel                    1996     130,417      48,600      39,994          --      20,052      13,506

O. Horton Cunningham .............     1998     134,333      35,000      36,147      12,000      42,551      14,513
    Vice President                     1997     130,333      43,000      36,821          --      27,029      11,799
                                       1996     126,000      45,300      37,495          --      23,597      11,052

David L. Langley .................     1998     134,333      34,800      23,134      12,000      50,516      12,968
    Vice President                     1997     129,292      42,800      23,565          --      52,028      12,992
                                       1996     123,750      47,800      23,997          --      20,080      12,000

Thomas R. Harper .................     1998     134,333      35,200      23,134      12,000      40,054      16,117
    Vice President                     1997     129,083      43,000      23,565          --      33,533      15,243
                                       1996     123,125      46,500      23,997          --      14,370      13,339

Ernest P. Hagan (6) ..............     1998     126,292      27,100          --      12,000          --      12,090
    Vice President                     1997     120,417      39,200          --       2,300          --      10,769
                                       1996      29,375       6,525          --          --          --       2,257
</TABLE>

-------------
(1) Amounts represent bonuses accrued during the year under the Management
    Incentive Compensation Plan ("MICP"). Payments under the MICP were made in
    the subsequent year.

(2) Amounts shown for 1998, 1997 and 1996 are for quarterly distribution
    equivalents under the terms of the Company's Long Term Incentive
    Compensation Plan ("LTICP").

(3) Amounts represent awards pursuant to the Texas Eastern Products Pipeline
    Company 1994 Long Term Incentive Plan ("1994 LTIP"). See "Compensation
    Pursuant to General Partner Plans" for further discussion of the 1994 LTIP.

(4) Amounts represent the value of redemptions under the 1996 amendment to the
    LTICP and credits earned to Performance Unit accounts and options exercised
    under the terms of 1994 LTIP. Also, for Mr. Thacker in 1997 and 1996,
    amounts include crediting of phantom units awarded in a prior year under the
    terms of the LTICP.

(5) Includes amounts contributed by the Company for the Named Executive Officers
    under the Employees' Savings Plan of PanEnergy ("ESP") and under the
    PanEnergy Key Executive Deferred Compensation Plan, an unfunded, defined
    contribution plan that allows eligible employees to elect deferral of base
    salary and bonus, and receive matching Company contributions, whenever and
    to the extent that their participation in the 


                                       22

<PAGE>   25

    ESP is limited by provisions of the Internal Revenue Code, and the imputed
    value of premiums paid by the Company for insurance on the Named Executive
    Officers' lives.

(6) Mr. Hagan was named Vice President, Operations, effective October 1, 1996.
    Amounts for 1996 represent compensation for the period October 1, 1996,
    through December 31, 1996.

EXECUTIVE EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS

         On September 1, 1992, William L. Thacker, Jr. and the Company entered
into an employment agreement, which set a minimum base salary of $190,000 per
year. The Company may terminate the employment agreement for cause, death or
disability. In addition, the Company or Mr. Thacker may terminate the agreement
upon written notice. Additionally, the Company granted 16,000 phantom units with
distribution equivalents to Mr. Thacker pursuant to the LTICP discussed below.
Mr. Thacker participates in other Company sponsored benefit plans on the same
basis as other senior executives of the Company.

         On December 1, 1998, the Company entered into employment agreements
with O. Horton Cunningham, Ernest P. Hagan, Thomas R. Harper, David L. Langley,
Charles H. Leonard and James C. Ruth. The agreements may be terminated for
death, disability or by the Company with or without cause. In the event one of
the named executives' employment is terminated due to death or disability or by
the Company for cause, such executive is entitled only to base salary earned
through the date of termination. In the event of termination for any other
reason, such executive is entitled to base salary earned through the date of
termination plus a lump sum severance payment equal to two times such
executive's base annual salary and two times the current target bonus approved
under the MICP by the Compensation Committee. In the event that an executive is
involuntarily terminated following a change in control, such executive is
entitled to a lump sum severance payment equal to two times his base annual
salary plus two times his current target bonus.

COMPENSATION PURSUANT TO GENERAL PARTNER PLANS

     Management Incentive Compensation Plan

         The General Partner has established the MICP, which provides for the
payment of additional cash compensation to participants if certain Partnership
performance and personal objectives are met each year. The Compensation
Committee (the "Committee") determines at the beginning of each year which
employees are eligible to become participants in the MICP. Each participant is
assigned a target award by the Committee. Such target award determines the
additional compensation to be paid if all Partnership performance and personal
objectives are met and all Minimum Quarterly Distributions have been made for
the year. The amount of the awards may range from 10% to 56% of a participant's
base salary. Awards are paid as soon as practicable following approval by the
Committee after the close of a year.

       Long Term Incentive Compensation Plan

         The LTICP provides key employees with an incentive award based upon the
grant of phantom units. The LTICP is administered by the Committee, which has
sole and absolute discretion to determine the amount of an award. The credit of
phantom units under the terms of the LTICP is contingent upon all cash
distributions being made to the Unitholders of the Parent Partnership and the
General Partner. The Committee may also establish performance targets for
crediting of phantom units. The award consists of phantom units with a total
market value, as of the date of the award, that may not exceed 100% of the base
salary of a participant. The phantom units are credited to each participant at
the rate of 10% per year beginning on the first anniversary date of the award. A
final credit of 60% of the phantom units awarded will occur on the fifth
anniversary date of the award. The phantom units may be redeemed by a
participant at any time following credit to a participant in accordance with
terms and conditions prescribed by the Committee. The redemption price of the
phantom units is based on the market value of a Limited Partner Unit of the
Parent Partnership as of the date of redemption. In the event of a change of
control, all phantom units



                                       23

<PAGE>   26

awarded to a participant will be redeemed. Each participant also receives a
quarterly distribution equivalent in cash based upon a percentage of the
distributions to the General Partner for such quarter. In 1995, the LTICP was
amended to require annual redemptions, effective January 1, 1996, of 20% of the
phantom units previously credited to each participant. See Item 13, "Certain
Relationships and Related Transactions."

     1994 Long Term Incentive Plan

         The 1994 LTIP provides key employees with an incentive award whereby a
participant is granted an option to purchase Limited Partner Units of the Parent
Partnership together with a stipulated number of Performance Units. Each
Performance Unit creates a credit to a participant's Performance Unit account
when earnings of the Parent Partnership exceed a threshold, which was $1.00,
$1.25 and $1.875 per Limited Partner Unit for the awards made in 1994, 1995, and
1997, respectively. No Performance Unit awards were granted during 1996 and
1998. When earnings for a calendar year (exclusive of certain special items)
exceed the threshold, the excess amount is credited to the participant's
Performance Unit account. The balance in the account may be used to exercise
Unit options granted in connection with the Performance Units or may be
withdrawn two years after the underlying options expire, usually 10 years from
the date of grant. Under the agreement for such Unit options, the options become
exercisable in equal installments over periods of one, two, and three years from
the date of the grant. Options may also be exercised by normal means once
vesting requirements are met.

         The following table shows all grants of unit options of the Parent
Partnership to the Named Executive Officers in 1998. No Stock appreciation
rights (SARs) were granted to any Named Executive Officer in 1998 nor were the
exercise prices on unit options previously awarded amended or adjusted.

                      OPTION/SAR GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
                                                              INDIVIDUAL GRANTS
                              -----------------------------------------------------------------------------------
                                                                                                    GRANT DATE
                                NUMBER OF         PERCENT OF                                           VALUE
                                SECURITIES      TOTAL OPTIONS/                                    ---------------
                                UNDERLYING       SARS GRANTED      EXERCISE OR                      GRANT DATE
                               OPTIONS/SARS      TO EMPLOYEES      BASE PRICE      EXPIRATION         PRESENT
                               GRANTED(1)(#)    IN FISCAL YEAR      ($/UNIT)          DATE           VALUE(2)$
                              ---------------   --------------   -------------    ------------    ---------------
<S>                          <C>               <C>              <C>               <C>            <C>
Mr. Thacker ..............        39,000             35            25.6875          1/18/08          $94,770
Mr. Leonard ..............        12,000             11            25.6875          1/18/08          $29,160
Mr. Ruth .................        12,000             11            25.6875          1/18/08          $29,160
Mr. Cunningham ...........        12,000             11            25.6875          1/18/08          $29,160
Mr. Langley ..............        12,000             11            25.6875          1/18/08          $29,160
Mr. Harper ...............        12,000             11            25.6875          1/18/08          $29,160
Mr. Hagan ................        12,000             11            25.6875          1/18/08          $29,160
</TABLE>

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

    (1)  On January 16, 1998, Mr. Thacker was granted options to purchase 39,000
         Limited Partner Units under the terms of the 1994 LTIP at an exercise
         price of $25.6875 per Limited Partner Unit, which was the fair market
         value of a Limited Partner Unit on the date of grant. Also on January
         16, 1998, Messrs. Leonard, Ruth, Cunningham, Langley, Harper and Hagan
         were granted options to purchase 12,000 Limited Partner Units under the
         terms of the 1994 LTIP at an exercise price of $25.6875, which was the
         fair market value of a Limited Partner Unit on the date of grant. No
         Performance Units were granted in 1998.

    (2)  Based on the Black-Scholes option valuation model. The key input
         variables used in valuing the options were: risk-free interest rate
         based on 6-year Treasury strips - 5.5%; dividend yield - 7.8%; Unit
         price volatility - 18%. Expected dividend yield and price volatility
         was based on historical Limited Partner Unit data. No adjustments for
         non-transferability or risk of forfeiture were made. The actual value,
         if any, a grantee amy realize will depend on the excess of the Limited
         Partner Unit price over the exercise price on the date the option is
         exercised, so that there is no assurance the value realized will be at
         or near the value estimated by the Black-Scholes model.


                                       24

<PAGE>   27

         The following table provides information concerning the unit options of
the Parent Partnership exercised by each of the Named Executive Officers during
1998 and the value of unexercised unit options to the Named Executive Officers
as of December 31, 1998. The value assigned to each unexercised, "in the money"
option is based on the positive spread between the exercise price of such option
and the fair market value of a Limited Partner Unit on December 31, 1998. The
fair market value is the average of the high and low prices of a Limited Partner
Unit on that date as reported in The Wall Street Journal. In assessing the
value, it should be kept in mind that no matter what theoretical value is placed
on an option on a particular date, its ultimate value will be dependent on the
market value of the Parent Partnership's Limited Partner Unit price at a future
date. The future value will depend in part on the efforts of the Named Executive
Officers to foster the future success of the Partnership.

            AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR AND
                        FISCAL YEAR-END OPTION/SAR VALUES

<TABLE>
<CAPTION>
                                                                                                  VALUE OF    
                                                                                                 UNEXERCISED  
                                                                    NUMBER OF SECURITIES        IN-THE MONEY  
                                                                   UNDERLYING UNEXERCISED       OPTIONS/SARS  
                                     SHARES                        OPTIONS/SARS AT FY-END       AT FY-END ($) 
                                  ACQUIRED ON        VALUE            (#) EXERCISABLE/          EXERCISABLE/  
NAME                              EXERCISE (#)     REALIZED($)       UNEXERCISABLE (1)          UNEXERCISABLE 
------------------------------    -------------    -----------     -----------------------    ------------------
<S>                               <C>              <C>            <C>                         <C>
Mr. Thacker ....................         5,298        $68,065               22,164/44,896      $201,790/$16,216
Mr. Leonard ....................         2,800        $38,866               10,694/12,000           $113,290/$0
Mr. Ruth .......................           708         $9,472               11,592/12,000           $122,803/$0
Mr. Cunningham .................           708         $9,472               10,518/12,000           $111,425/$0
Mr. Langley ....................         2,000        $26,757                6,000/12,000            $63,563/$0
Mr. Harper .....................         1,218        $16,295               10,632/12,000           $112,633/$0
Mr. Hagan ......................            --             --                  759/13,541         $2,087/$4,238
</TABLE>

    (1)  Future exercisability of currently unexercisable options depends on the
         grantee remaining employed by the Company throughout the vesting period
         of the options, subject to provisions applicable at retirement, death,
         or total disability.

     1997 Employee Incentive Compensation Plan

         The General Partner has adopted the 1997 Employee Incentive
Compensation Plan ("1997 EICP"), which provides an award of shadow units to all
employees who are not eligible to participate in the MICP. The 1997 EICP is
administered by the Committee, which maintains an incentive award account for
each participant. Each participant is eligible for an annual award of up to 600
shadow units, depending on the level of earnings achieved by the Partnership
each year, which generally entitles such participant to receive a credit equal
to the quarterly distribution that such participant would have received had the
participant been the owner of Limited Partner Units of the Parent Partnership.
The Committee may add a premium from 10% to 30% to the credit if certain safety
and operational goals are attained. Payment of the credits is contingent upon
the participant remaining in the employment of the General Partner during the
year in which the shadow units are outstanding. Awards to participants are paid
in cash following the close of each year in an amount equal to the credits in
the participant's incentive award account with respect to such year.

PENSION PLAN

         The Company's employees, along with employees of other Duke Energy
affiliates, are included in either of two noncontributory, qualified, defined
benefit retirement plans: the Retirement Cash Balance Plan and the Retirement
Income Plan. The Retirement Income Plan ceased admitting new participants after
December 31, 1998. In addition, the Named Executive Officers participate in the
Executive Cash Balance Plan, which is a noncontributory, non qualified, defined
benefit retirement plan. A portion of the benefits earned in the Executive Cash
Balance Plan is attributable to compensation in excess of the Internal Revenue
Service annual compensation 



                                       25

<PAGE>   28

limit ($160,000 for 1998) and deferred compensation, as well as reductions
caused by maximum benefit limitations that apply to qualified plans from the
benefits that would otherwise be provided under the Retirement Cash Balance Plan
and the Retirement Income Plan. Benefits under the Retirement Cash Balance Plan,
the Retirement Income Plan and the Executive Cash Balance Plan are based on
eligible pay, generally consisting of base pay and lump-sum merit increases. The
Retirement Cash Balance Plan and the Retirement Income Plan exclude deferred
compensation, other than deferrals pursuant to Sections 401(k) and 125 of the
Internal Revenue Code.

         Under a new benefit accrual formula that applies in determining
benefits under the Retirement Cash Balance Plan, and the Retirement Income Plan
on and after January 1, 1999, an eligible employee's plan account receives a pay
credit at the end of each month in which the employee remains eligible and
receives eligible pay for services. The monthly pay credit is equal to a
percentage of the employee's monthly eligible pay. The percentage depends on age
added to completed years of services at the beginning of the year, as shown
below:

<TABLE>
<CAPTION>
                                               MONTHLY PAY CREDIT
       AGE AND SERVICE                             PERCENTAGE
       ---------------                        ---------------------
<S>                                          <C>
       34 or less ..........................                    4%
       35 to 49 ............................                    5%
       50 to 64 ............................                    6%
       65 or more ..........................                    7%
</TABLE>

         In addition, the employee receives a monthly allocation of 4% for any
portion of eligible pay above the Social Security taxable wage base ($72,600 for
1999). However, for certain other employees of the Company, the percentage is a
flat 3% of eligible pay. Employee accounts also receive monthly interest credits
on their balances. The rate of the interest credit is adjusted quarterly and
equals the yield on 30-year U.S. Treasury Bonds during the third week of the
last month of the previous quarter, subject to a minimum rate of 4% per year and
a maximum rate of 9% per year.

         Prior to application of the new benefit accrual formula, benefits for
eligible employees, including benefits under the Retirement Income Plan for
1998, were determined under other formulas. To transition from a prior formula
to the new formula, an eligible employee's accrued benefit earned under the
prior formula is preserved as a minimum, and the employee's account under the
new benefit accrual formula receives an opening balance derived from a variety
of factors.

         Assuming that the Named Executive Officers continue in their present
positions at their present salaries until retirement at age 65, their estimated
annual pensions in a single life annuity form under the applicable plan(s)
attributable to such salaries would be as follows: William L. Thacker, $238,677;
Charles H. Leonard, $99,974; James C. Ruth, $179,397; O. Horton Cunningham,
$95,908; David L. Langley, $168,898; Thomas R. Harper, $61,117; and Ernest P.
Hagan, $125,878. Such estimates were calculated assuming interest credits at a
rate of 7% per annum and using a future Social Security taxable wage base equal
to $72,600.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         TEPPCO Partners, L.P. (the "Parent Partnership") owns a 98.9899%
interest as the sole limited partner interest and Texas Eastern Products
Pipeline Company owns a 1.0101% general partner interest in the Partnership. The
information below identifies security ownership of the Parent Partnership.

         (a) Security Ownership of Certain Beneficial Owners

         As of March 1, 1999, Duke Energy, through its ownership of the Company
and other subsidiaries, owns 2,500,000 Limited Partner Units, representing 8.62%
of the Limited Partner Units outstanding; and 3,916,547 Class B Units,
representing 100% of the Class B Units, or 19.49% of the two classes of Units
combined.



                                       26

<PAGE>   29


         (b) Security Ownership of Management

         The following table sets forth certain information, as of March 1,
1999, concerning the beneficial ownership of Limited Partner Units by each
director and Named Executive Officer of the General Partner and by all directors
and officers of the General Partner as a group. Such information is based on
data furnished by the persons named. Based on information furnished to the
General Partner by such persons, no director or officer of the General Partner
owned beneficially, as of March 1, 1999, more than 1% of the Limited Partner
Units outstanding at that date.

<TABLE>
<CAPTION>
                                                                NUMBER OF
NAME                                                            UNITS (1)
----                                                            ---------
<S>                                                            <C>  
Milton Carroll ................................................    1,000
Carl D. Clay (2) ..............................................    3,200
Derrill Cody ..................................................   13,000
John P. DesBarres .............................................   20,000
Fred J. Fowler ................................................      400
Jim W. Mogg ...................................................      200
Richard J. Osborne ............................................    1,000
Ruth G. Shaw ..................................................      900
William L. Thacker ............................................   27,142
Charles H. Leonard ............................................    3,406
James C. Ruth .................................................    2,974
O. Horton Cunningham (3) ......................................    6,888
David L. Langley ..............................................   20,000
Thomas R. Harper (4) ..........................................    4,566
Ernest P. Hagan ...............................................   12,000
All directors and officers 
 (consisting of 20 people, including those named above) .......  116,876
</TABLE>

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

(1) Unless otherwise indicated, the persons named above have sole voting and
    investment power over the Units reported.

(2) Includes 1,800 Units in wife's name.

(3) Includes 200 Units in daughter's name.

(4) Includes 2,150 Units in wife's name.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The Partnership is managed and controlled by the General Partner
pursuant to the Partnership Agreement. Under the Partnership Agreement, the
General Partner is reimbursed for all direct and indirect expenses it incurs or
payments it makes on behalf of the Partnership. These expenses include salaries,
fees and other compensation and benefit expenses of employees, officers and
directors, insurance, other administrative or overhead expenses and all other
expenses necessary or appropriate to conduct the Partnership's business. The
costs allocated to the Partnership by the General Partner for administrative
services and overhead totaled $2.5 million in 1998.

         During 1990, the Parent Partnership completed an initial public
offering of 26,500,000 Units representing Limited Partner Interests ("Limited
Partner Units") at $10 per Unit. In connection with the offering, the Company
received 2,500,000 Deferred Participation Interests ("DPIs"). Effective April 1,
1994, the DPIs began participating in distributions of cash and allocations of
profit and loss of the Partnership.



                                       27

<PAGE>   30

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

         (a)      The following documents are filed as a part of this Report:

                  (1)      Financial Statements: See Index to
                           Financial Statements on page F-1 of this report for
                           financial statements filed as part of this report.

                  (2)      Financial Statement Schedules: None

                  (3)      Exhibits:

<TABLE>
<CAPTION>
  EXHIBIT
  NUMBER                            DESCRIPTION
  -------                           -----------
<S>           <C>
     3.1       Certificate of Formation of TEPPCO Colorado, LLC (Filed as
               Exhibit 3.2 to Form 10-Q of TEPPCO Partners, L.P. (Commission
               File No. 1-10403) for the quarter ended March 31, 1998 and
               incorporated herein by reference)

     3.2       Amended and Restated Agreement of Limited Partnership of TE
               Products Pipeline Company, Limited Partnership, effective July
               21, 1998 (Filed as Exhibit 3.2 to Form 8-K of TEPPCO Partners,
               L.P. (Commission File No. 1-10403) dated July 21, 1998 and
               incorporated herein by reference).

     4.1       Form of Indenture between TE Products Pipeline Company, Limited
               Partnership and The Bank of New York, as Trustee, dated as of
               January 27, 1998 (Filed as Exhibit 4.3 to TE Products Pipeline
               Company, Limited Partnership's Registration Statement on Form S-3
               (Commission File No. 333-38473) and incorporated herein by
               reference).

     10.1      Assignment and Assumption Agreement, dated March 24, 1988,
               between Texas Eastern Transmission Corporation and the Company
               (Filed as Exhibit 10.8 to the Registration Statement of TEPPCO
               Partners, L.P. (Commission File No. 33-32203) and incorporated
               herein by reference).

     10.2      Texas Eastern Products Pipeline Company 1997 Employee Incentive
               Compensation Plan executed on July 14, 1997 (Filed as Exhibit 10
               to Form 10-Q of TEPPCO Partners, L.P. (Commission File No.
               1-10403) for the quarter ended September 30, 1997 and
               incorporated herein by reference).

     10.3      Agreement Regarding Environmental Indemnities and Certain Assets
               (Filed as Exhibit 10.5 to Form 10-K of TEPPCO Partners, L.P.
               (Commission File No. 1-10403) for the year ended December 31,
               1990 and incorporated herein by reference).

     10.4      Texas Eastern Products Pipeline Company Management Incentive
               Compensation Plan executed on January 30, 1992 (Filed as Exhibit
               10 to Form 10-Q of TEPPCO Partners, L.P. (Commission File No.
               1-10403) for the quarter ended March 31, 1992 and incorporated
               herein by reference).

     10.5      Texas Eastern Products Pipeline Company Long-Term Incentive
               Compensation Plan executed on October 31, 1990 (Filed as Exhibit
               10.9 to Form 10-K of TEPPCO Partners, L.P. (Commission File No.
               1-10403) for the year ended December 31, 1990 and incorporated
               herein by reference).

     10.6      Form of Amendment to Texas Eastern Products Pipeline Company
               Long-Term Incentive Compensation Plan (Filed as Exhibit 10.7 to
               the Partnership's Form 10-K (Commission File No. 1-10403) for the
               year ended December 31, 1995 and incorporated herein by
               reference).

     10.7      Employees' Savings Plan of Panhandle Eastern Corporation and
               Participating Affiliates (Effective January 1, 1991) (Filed as
               Exhibit 10.10 to the Partnership's Form 10-K (Commission File No.
               1-10403) for the year ended December 31, 1990 and incorporated
               herein by reference).
</TABLE>

                                       28

<PAGE>   31
<TABLE>
<CAPTION>
<S>           <C>
     10.8      Retirement Income Plan of Panhandle Eastern Corporation and
               Participating Affiliates (Effective January 1, 1991) (Filed as
               Exhibit 10.11 to Form 10-K of TEPPCO Partners, L.P. (Commission
               File No. 1-10403) for the year ended December 31, 1990 and
               incorporated herein by reference).

     10.9      Panhandle Eastern Corporation Key Executive Retirement Benefit
               Equalization Plan, adopted December 20, 1993; effective January
               1, 1994 (Filed as Exhibit 10.12 to Form 10-K of Panhandle Eastern
               Corporation (Commission File No. 1-8157) for the year ended
               December 31, 1993 and incorporated herein by reference).

     10.10     Employment Agreement with William L. Thacker, Jr. (Filed as
               Exhibit 10 to Form 10-Q of TEPPCO Partners, L.P. (Commission File
               No. 1-10403) for the quarter ended September 30, 1992 and
               incorporated herein by reference).

     10.11     Texas Eastern Products Pipeline Company 1994 Long Term Incentive
               Plan executed on March 8, 1994 (Filed as Exhibit 10.1 to Form
               10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for
               the quarter ended March 31, 1994 and incorporated herein by
               reference).

     10.12     Panhandle Eastern Corporation Key Executive Deferred Compensation
               Plan established effective January 1, 1994 (Filed as Exhibit 10.2
               to Form 10-Q of TEPPCO Partners, L.P. (Commission File No.
               1-10403) for the quarter ended March 31, 1994 and incorporated
               herein by reference).

     10.13     Asset Purchase Agreement between Duke Energy Field Services, Inc.
               and TEPPCO Colorado, LLC, dated March 31, 1998 (Filed as Exhibit
               10.14 to Form 10-Q of TEPPCO Partners, L.P. (Commission File No.
               1-10403) for the quarter ended March 31, 1998 and incorporated
               herein by reference).

     10.14     Credit Agreement between TEPPCO Colorado, LLC, SunTrust Bank,
               Atlanta, and Certain Lenders, dated April 21, 1998 (Filed as
               Exhibit 10.15 to Form 10-Q of TEPPCO Partners, L.P. (Commission
               File No. 1-10403) for the quarter ended March 31, 1998 and
               incorporated herein by reference).

     10.15     First Amendment to Credit Agreement between TEPPCO Colorado, LLC,
               SunTrust Bank, Atlanta, and Certain Lenders, effective June 29,
               1998 (Filed as Exhibit 10.15 to Form 10-Q of TEPPCO Partners,
               L.P. (Commission File No. 1-10403) for the quarter ended June 30,
               1998 and incorporated herein by reference).

     10.16     Form of Employment Agreement between the Company and O. Horton
               Cunningham, Ernest P. Hagan, Thomas R. Harper, David L. Langley,
               Charles H. Leonard and James C. Ruth, dated December 1, 1998
               (Filed as Exhibit 10.20 to Form 10-K of TEPPCO Partners, L.P.
               (Commission File No. 1-10403) for the year ended December 31,
               1998 and incorporated herein by reference).

     *24       Powers of Attorney.

     *27       Financial Data Schedule as of and for the year ended December 31,
               1998.
</TABLE>

     -----------------------
     * Filed herewith.

         (b)      Reports on Form 8-K filed during the quarter ended December
                  31, 1998: None







                                       29

<PAGE>   32


                                   SIGNATURES

         TE Products Pipeline Company, Limited Partnership, pursuant to the
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.

                               TE Products Pipeline Company, Limited Partnership
                               -------------------------------------------------
                                                  (Registrant)
                                         (A Delaware Limited Partnership)

                                  By: Texas Eastern Products Pipeline
                                      Company as General Partner

                                  By: /s/ CHARLES H. LEONARD
                                      -------------------------------------
                                               Charles H. Leonard,
                                      Senior Vice President, Chief Financial
                                              Officer and Treasurer
DATED: March 25, 1999
             --

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.

<TABLE>
<CAPTION>
               SIGNATURE                                TITLE                                  DATE
               ---------                                -----                                  ----
<S>                                      <C>                                               <C>
      /s/ WILLIAM L. THACKER*             Chairman  of the  Board,  President               March 25, 1999
----------------------------------------  and Chief Executive Officer of Texas
          William L. Thacker              Eastern Products Pipeline Company


      /s/ CHARLES H. LEONARD                 Senior Vice President, Chief                   March 25, 1999
----------------------------------------       Financial Officer and
          Charles H. Leonard             Treasurer of Texas Eastern Products 
                                                   Pipeline Company          
                                         (Principal Accounting and Financial 
                                                       Officer)              


        /s/ FRED J. FOWLER*              Vice Chairman of the Board of Texas                March 25, 1999
----------------------------------------  Eastern Products Pipeline Company
            Fred J. Fowler


        /s/ MILTON CARROLL*                   Director of Texas Eastern                     March 25, 1999
----------------------------------------      Products Pipeline Company
            Milton Carroll


         /s/ CARL D. CLAY*                    Director of Texas Eastern                     March 25, 1999
----------------------------------------      Products Pipeline Company
             Carl D. Clay


         /s/ DERRILL CODY*                    Director of Texas Eastern                     March 25, 1999
----------------------------------------      Products Pipeline Company
             Derrill Cody


      /s/ JOHN P. DESBARRES*                  Director of Texas Eastern                     March 25, 1999
----------------------------------------      Products Pipeline Company
           John P. DesBarres


         /s/ JIM W. MOGG*                     Director of Texas Eastern                     March 25, 1999
----------------------------------------      Products Pipeline Company
              Jim W. Mogg                     


      /s/ RICHARD J. OSBORNE*                 Director of Texas Eastern                     March 25, 1999
----------------------------------------      Products Pipeline Company
          Richard J. Osborne


         /s/ RUTH G. SHAW*                    Director of Texas Eastern                     March 25, 1999
----------------------------------------      Products Pipeline Company
             Ruth G. Shaw
</TABLE>

* Signed on behalf of the Registrant and each of these persons:


         By:       /s/ CHARLES H. LEONARD
            --------------------------------------
            (Charles H. Leonard, Attorney-in-Fact)






                                       30


<PAGE>   33


                       CONSOLIDATED FINANCIAL STATEMENTS
              OF TE PRODUCTS PIPELINE COMPANY, LIMITED PARTNERSHIP

                         INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                               PAGE
                                                                                               ----
<S>                                                                                           <C>
Independent Auditors' Report ................................................................. F-2

Consolidated Balance Sheets as of December 31, 1998 and 1997 ................................. F-3

Consolidated Statements of Income for the years ended December 31, 1998, 1997 and 1996 ....... F-4

Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996 ... F-5

Consolidated Statements of Partners' Capital for the years ended December 31, 1998,
   1997 and 1996 ............................................................................. F-6

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



















                                      F-1



<PAGE>   34


                          INDEPENDENT AUDITORS' REPORT

To the Partners of
TE Products Pipeline Company, Limited Partnership:

         We have audited the accompanying consolidated balance sheets of TE
Products Pipeline Company, Limited Partnership as of December 31, 1998 and 1997,
and the related consolidated statements of income, partners' capital, and cash
flows for each of the years in the three-year period ended December 31, 1998.
These consolidated financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

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

         In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of TE Products
Pipeline Company, Limited Partnership as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998 in conformity with generally accepted
accounting principles.




                                               KPMG LLP




Houston, Texas
January 15, 1999














                                      F-2


<PAGE>   35




                TE PRODUCTS PIPELINE COMPANY LIMITED PARTNERSHIP

                           CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                                  DECEMBER 31,
                                                                            ---------------------
                                                                              1998         1997
                                                                            --------     --------
<S>                                                                        <C>          <C>     
                                              ASSETS
Current assets:
   Cash and cash equivalents ..........................................     $ 36,723     $ 43,961
   Short-term investments .............................................        3,269        2,105
   Accounts receivable, trade .........................................       17,740       19,826
   Inventories ........................................................       13,392       15,191
   Other ..............................................................        1,509        4,173
                                                                            --------     --------
           Total current assets .......................................       72,633       85,256
                                                                            --------     --------
Property, plant and equipment, at cost (Net of accumulated depreciation
   and amortization of $192,960 and $170,063) .........................      567,566      567,681
Investments ...........................................................        6,490       10,010
Intangible assets .....................................................       36,842           --
Advances to limited partner ...........................................        1,989           --
Other assets ..........................................................       10,966       10,962
                                                                            --------     --------
           Total assets ...............................................     $696,486     $673,909
                                                                            ========     ========


                          LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
   Current maturities, First Mortgage Notes ...........................     $     --     $ 17,000
   Accounts payable and accrued liabilities ...........................        8,513        9,615
   Accounts payable, general partner ..................................        2,815        3,735
   Accrued interest ...................................................       13,039       10,539
   Other accrued taxes ................................................        5,878        6,246
   Other ..............................................................        6,974        6,740
                                                                            --------     --------
           Total current liabilities ..................................       37,219       53,875
                                                                            --------     --------
First Mortgage Notes ..................................................           --      309,512
Senior Notes ..........................................................      389,722           --
Other long term debt ..................................................       38,000           --
Other liabilities and deferred credits ................................        3,407        4,462
Partners' capital:
   General partner's interest .........................................        2,306        3,093
   Limited partner's interest .........................................      225,832      302,967
                                                                            --------     --------
           Total partners' capital ....................................      228,138      306,060
                                                                            --------     --------
Commitments and contingencies
           Total liabilities and partners' capital ....................     $696,486     $673,909
                                                                            ========     ========
</TABLE>



          See accompanying Notes to Consolidated Financial Statements.



                                      F-3

<PAGE>   36

                         TE PRODUCTS PIPELINE COMPANY LIMITED PARTNERSHIP

                                 CONSOLIDATED STATEMENTS OF INCOME
                              (IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)


<TABLE>
<CAPTION>
                                                                    YEARS ENDED DECEMBER 31,
                                                            ------------------------------------------
                                                               1998            1997            1996
                                                            ----------      ----------      ----------
<S>                                                        <C>             <C>              <C>   
Operating revenues:
   Transportation -- Refined products .................     $  119,854      $  107,304      $   98,641
   Transportation -- LPGs .............................         60,902          79,371          80,219
   Mont Belvieu operations ............................         10,880          12,815          11,811
   Other ..............................................         20,147          22,603          25,354
                                                            ----------      ----------      ----------
           Total operating revenues ...................        211,783         222,093         216,025
                                                            ----------      ----------      ----------

Costs and expenses:
   Operating, general and administrative ..............         70,695          66,982          68,799
   Operating fuel and power ...........................         27,131          30,151          27,742
   Depreciation and amortization ......................         26,040          23,772          23,409
   Taxes -- other than income taxes ...................          9,276           9,638           8,641
                                                            ----------      ----------      ----------
           Total costs and expenses ...................        133,142         130,543         128,591
                                                            ----------      ----------      ----------
           Operating income ...........................         78,641          91,550          87,434
Interest expense ......................................        (29,777)        (33,707)        (34,922)
Interest capitalized ..................................            795           1,478           1,388
Other income -- net ...................................          2,873           2,604           5,346
                                                            ----------      ----------      ----------
           Income before loss on debt extinguishment ..         52,532          61,925          59,246
Extraordinary loss on debt extinguishment .............        (73,509)             --              --
                                                            ----------      ----------      ----------
          Net income (loss) ...........................     $ (20,977)      $   61,925      $   59,246
                                                            ==========      ==========      ==========
</TABLE>


          See accompanying Notes to Consolidated Financial Statements.










                                       F-4


<PAGE>   37


                TE PRODUCTS PIPELINE COMPANY LIMITED PARTNERSHIP

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                  YEARS ENDED DECEMBER 31,
                                                                         -------------------------------------------
                                                                            1998            1997            1996
                                                                         ----------      ----------      ----------
<S>                                                                      <C>             <C>             <C>       
Cash flows from operating activities:
   Net income (loss) ...............................................     $  (20,977)     $   61,925      $   59,246
   Adjustments to reconcile net income to cash provided by
     operating activities:
      Depreciation and amortization ................................         26,040          23,772          23,409
      Extraordinary loss on early extinguishment of debt ...........         73,509              --              --
      Loss (gain) on sale of property, plant and equipment .........           (356)            467              --
      Equity in loss of affiliate ..................................            189              --              --
      Decrease (increase) in accounts receivable ...................          2,086          (1,500)          1,705
      Decrease (increase) in inventories ...........................          1,799          (2,180)          3,997
      Decrease (increase) in other current assets ..................          2,664            (802)           (226)
      Increase (decrease) in accounts payable and accrued expenses .            344           2,322          (3,478)
      Other ........................................................         (1,383)           (400)          1,468
                                                                         ----------      ----------      ----------
           Net cash provided by operating activities ...............         83,915          83,604          86,121
                                                                         ----------      ----------      ----------

Cash flows from investing activities:
   Proceeds from cash investments ..................................          3,105          25,040          18,584
   Purchases of cash investments ...................................           (748)         (6,180)        (14,436)
   Insurance proceeds related to damaged assets ....................             --           1,046              --
   Purchase of fractionator assets and related intangible assets ...        (40,000)             --              --
   Restricted investments designated for property additions ........             --              --          10,553
   Proceeds from the sale of property, plant and equipment .........            525           1,377              --
   Capital expenditures ............................................        (22,710)        (32,931)        (51,264)
                                                                         ----------      ----------      ----------
           Net cash used in investing activities ...................        (59,828)        (11,648)        (36,563)
                                                                         ----------      ----------      ----------

Cash flows from financing activities:
   Principal payment, First Mortgage Notes .........................       (326,512)        (13,000)        (10,000)
   Prepayment premium, First Mortgage Notes ........................        (70,093)             --              --
   Issuance of Senior Notes ........................................        389,694              --              --
   Debt issuance cost, Senior Notes ................................         (3,651)             --              --
   Issuance of term loan ...........................................         38,000              --              --
   Advances to limited partner .....................................         (1,989)             --              --
   Distributions ...................................................        (56,774)        (49,042)        (45,174)
                                                                         ----------      ----------      ----------
           Net cash used in financing activities ...................        (31,325)        (62,042)        (55,174)
                                                                         ----------      ----------      ----------

Net increase (decrease) in cash and cash equivalents ...............         (7,238)          9,914          (5,616)
Cash and cash equivalents at beginning of period ...................         43,961          34,047          39,663
                                                                         ----------      ----------      ----------
Cash and cash equivalents at end of period .........................     $   36,723      $   43,961      $   34,047
                                                                         ==========      ==========      ==========

Supplemental disclosure of cash flows:
   Interest paid during the year (net of capitalized interest) .....     $   26,179      $   32,084      $   33,278
</TABLE>




          See accompanying Notes to Consolidated Financial Statements.



                                      F-5

<PAGE>   38

                TE PRODUCTS PIPELINE COMPANY LIMITED PARTNERSHIP

                  CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                  GENERAL        LIMITED
                                                 PARTNER'S       PARTNERS'
                                                  INTEREST       INTERESTS         TOTAL
                                                 ----------      ----------      ----------
<S>                                             <C>             <C>             <C>       
Partners' capital at December 31, 1995 .....     $    2,821      $  276,381      $  279,202
    1996 net income allocation .............            598          58,648          59,246
    1996 cash distributions ................           (456)        (44,718)        (45,174)
                                                 ----------      ----------      ----------
Partners' capital at December 31, 1996 .....          2,963         290,311         293,274
    1997 net income allocation .............            625          61,300          61,925
    1997 cash distributions ................           (495)        (48,547)        (49,042)
    Other ..................................             --             (97)            (97)
                                                 ----------      ----------      ----------
Partners' capital at December 31, 1997 .....          3,093         302,967         306,060
    1998 net loss allocation ...............           (213)        (20,764)        (20,977)
    1998 cash distributions ................           (574)        (56,200)        (56,774)
    Other ..................................             --            (171)           (171)
                                                 ----------      ----------      ----------
Partners' capital at December 31, 1998 .....     $    2,306      $  225,832      $  228,138
                                                 ==========      ==========      ==========
</TABLE>


          See accompanying Notes to Consolidated Financial Statements.





















                                      F-6


<PAGE>   39


                TE PRODUCTS PIPELINE COMPANY LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1. PARTNERSHIP ORGANIZATION

         TE Products Pipeline Company, Limited Partnership (the "Partnership"),
a Delaware limited partnership, was formed in March 1990. TEPPCO Partners, L.P.
(the "Parent Partnership") owns a 98.9899% interest as the sole limited partner
interest and Texas Eastern Products Pipeline Company (the "Company" or "General
Partner") owns a 1.0101% general partner interest in the Partnership. The
Company, as general partner, performs all management and operating functions
required for the Partnership pursuant to the Agreement of Limited Partnership of
TE Products Pipeline Company, Limited Partnership (the "Partnership Agreement").
The general partner is reimbursed by the Partnership for all reasonable direct
and indirect expenses incurred in managing the Partnership.

         On June 18, 1997, PanEnergy Corp ("PanEnergy") and Duke Power Company
completed a previously announced merger. At closing, the combined companies
became Duke Energy Corporation ("Duke Energy"). The Company, previously a
wholly-owned subsidiary of PanEnergy, became an indirect wholly-owned subsidiary
of Duke Energy on the date of the merger.

         During 1990, the Parent Partnership completed an initial public
offering of 26,500,000 Units representing Limited Partner Interests ("Limited
Partner Units") at $10 per Unit. In connection with the offering, the Company
received 2,500,000 Deferred Participation Interests ("DPIs"). Effective April 1,
1994, the DPIs began participating in distributions of cash and allocations of
profit and loss of the Partnership.

         Effective March 31, 1998, TEPPCO Colorado, LLC ("TEPPCO Colorado"), a
wholly owned subsidiary of the Partnership, purchased two fractionation
facilities located in Weld County, Colorado, from Duke Energy Field Services,
Inc. ("DEFS"), a wholly-owned subsidiary of Duke Energy. The transaction totaled
approximately $40 million and was accounted for under the purchase method of
accounting.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

         The financial statements include the accounts of the Partnership and
TEPPCO Colorado on a consolidated basis. All significant intercompany items have
been eliminated in consolidation. Certain amounts from prior years have been
reclassified to conform to current presentation.

NEW ACCOUNTING PRONOUNCEMENTS

         In October 1996, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") 123, "Accounting for
Stock-Based Compensation." This standard allows a company to adopt a fair value
based method of accounting for its stock-based compensation plans and addresses
the timing and measurement of stock-based compensation expense. The Partnership
has elected to retain the approach of Accounting Principles Board Opinion
("APB") No. 25, "Accounting for Stock issued to Employees," (the intrinsic value
method) for recognizing stock-based expense in the consolidated financial
statements. The Partnership adopted SFAS 123 in 1997 with respect to the
disclosure requirements set forth therein for companies retaining the intrinsic
value approach of APB No. 25 (see Note 10).

         In February 1998, the FASB issued SFAS 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." This standard revises
employers' disclosures about pension and other post retirement plans but does
not change the measurement or recognition of those plans. The Partnership
adopted this standard in 1998 (see Note 12).



                                      F-7

<PAGE>   40

                TE PRODUCTS PIPELINE COMPANY LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


         In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes standards for
and disclosures of derivative instruments and hedging activities. This statement
is effective for fiscal years beginning after June 15, 1999. The Partnership
expects to adopt this standard effective January 1, 2000, and does not expect
the adoption of this statement to have a material impact on its financial
condition or results of operations.

USE OF ESTIMATES

         The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

ENVIRONMENTAL EXPENDITURES

         The Partnership accrues for environmental costs that relate to existing
conditions caused by past operations. Environmental costs include initial site
surveys and environmental studies of potentially contaminated sites, costs for
remediation and restoration of sites determined to be contaminated and ongoing
monitoring costs, as well as fines, damages and other costs, when estimable. The
Partnership's accrued undiscounted environmental liabilities are monitored on a
regular basis by management. Liabilities for environmental costs at a specific
site are initially recorded when the Partnership's liability for such costs,
including direct internal and legal costs, is probable and a reasonable estimate
of the associated costs can be made. Adjustments to initial estimates are
recorded, from time to time, to reflect changing circumstances and estimates
based upon additional information developed in subsequent periods. Estimates of
the Partnership's ultimate liabilities associated with environmental costs are
particularly difficult to make with certainty due to the number of variables
involved, including the early stage of investigation at certain sites, the
lengthy time frames required to complete remediation alternatives available, the
uncertainty of potential recoveries from third parties and the evolving nature
of environmental laws and regulations.

BUSINESS SEGMENTS

         The Partnership has one business segment: the transportation, storage
and terminaling of refined products and liquefied petroleum gases ("LPGs"). The
Partnership's interstate transportation operations, including rates charged to
customers, are subject to regulations prescribed by the Federal Energy
Regulatory Commission ("FERC"). Refined products and LPGs are referred to
herein, collectively, as "petroleum products" or "products."

REVENUE RECOGNITION

         Substantially all revenues of the Partnership are derived from
interstate and intrastate transportation, storage and terminaling of petroleum
products. Transportation revenues are recognized as products are delivered to
customers. Storage revenues are recognized upon receipt of products into storage
and upon performance of storage services. Terminaling revenues are recognized as
products are out-loaded. Revenues from the sale of product inventory are
recognized net of product cost when the products are sold. Fractionation
revenues are recognized ratably over the contract year as products are
transferred to DEFS.

INVENTORIES

         Inventories consist primarily of petroleum products which are valued at
the lower of cost (weighted average cost method) or market. The Partnership
acquires and disposes of various products under exchange agreements. 



                                      F-8

<PAGE>   41

                TE PRODUCTS PIPELINE COMPANY LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Receivables and payables arising from these transactions are usually satisfied
with products rather than cash. The net balances of exchange receivables and
payables are valued at weighted average cost and included in inventories.

         The Partnership periodically enters into futures contracts to hedge its
exposure to price risk on product inventory transactions. Recognized gains and
losses related to futures contracts which qualify as hedges are recognized in
income when the related inventory transactions are completed. Gains and losses
related to futures contracts, to the extent settled in cash, are reported as a
component of product inventory in the consolidated balance sheet until
recognized as income. At December 31, 1998, there were no outstanding futures
contracts.

PROPERTY, PLANT AND EQUIPMENT

         Additions to property, plant and equipment, including major
replacements or betterments, are recorded at cost. Replacements and renewals of
minor items of property are charged to maintenance expense. Depreciation expense
is computed on the straight-line method using rates based upon expected useful
lives of various classes of assets (ranging from 2% to 20% per annum). Upon sale
or retirement of properties regulated by the FERC, cost less salvage is normally
charged to accumulated depreciation, and no gain or loss is recognized.

CAPITALIZATION OF INTEREST

         In connection with the construction of facilities regulated by the
FERC, interest is capitalized in accordance with a FERC-established method. The
rate used to capitalize interest on borrowed funds was 7.02%, 10.09% and 10.07%
for 1998, 1997 and 1996, respectively.

INCOME TAXES

         The Partnership is a limited partnership. As a result, the
Partnership's income or loss for federal income tax purposes is included in the
tax return of the partners, and may vary substantially from income or loss
reported for financial reporting purposes. Accordingly, no recognition has been
given to federal income taxes for the Partnership's operations. At December 31,
1998 and 1997, the Partnership's reported amount of net assets for financial
reporting purposes exceeded its tax basis by approximately $227 million and $223
million, respectively.

CASH FLOWS

         For purposes of reporting cash flows, all liquid investments with
maturities at date of purchase of 90-days or less are considered cash
equivalents.

NOTE 3. RELATED PARTY TRANSACTIONS

         The Partnership has no employees and is managed by the Company.
Pursuant to the Partnership Agreement, the Company is entitled to reimbursement
of all direct and indirect expenses related to business activities of the
Partnership (see Note 1).

         For 1998, 1997 and 1996, direct expenses incurred by the general
partner in the amount of $37.4 million, $38.2 million and $36.0 million,
respectively, were charged to the Partnership. Substantially all such costs
related to payroll and payroll related expenses, which included $1.0 million,
$1.8 million and $1.9 million of expense for incentive compensation plans for
each of the years ended 1998, 1997 and 1996, respectively.

         For 1998, 1997 and 1996, expenses for administrative service and
overhead allocated to the Partnership by the general partner (including Duke
Energy and its affiliates) amounted to $2.5 million, $2.7 million and $2.6



                                      F-9

<PAGE>   42

                TE PRODUCTS PIPELINE COMPANY LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


million, respectively. Such costs incurred by the general partner included
general and administrative costs related to business activities of the
Partnership.

         Effective with the purchase of the fractionation facilities, TEPPCO
Colorado and DEFS entered into a twenty-year Fractionation Agreement, under
which TEPPCO Colorado receives a variable fee for all fractionated volumes
delivered to DEFS. Revenues recognized from the Fractionation Agreement totaled
$5.5 million from April 1, 1998 through December 31, 1998. TEPPCO Colorado and
DEFS also entered into a Operation and Maintenance Agreement, whereby DEFS
operates and maintains the fractionation facilities. For these services, TEPPCO
Colorado pays DEFS a set volumetric rate for all fractionated volumes delivered
to DEFS. Expenses related to the Operation and Maintenance Agreement totaled
$0.7 million from April 1, 1998 through December 31, 1998.

NOTE 4. INVESTMENTS

SHORT-TERM INVESTMENTS

         The Partnership routinely invests cash in liquid short-term investments
as part of its cash management program. Investments with maturities at date of
purchase of 90-days or less are considered cash and cash equivalents. All
short-term investments are classified as held-to-maturity securities and are
stated at amortized cost. At December 31, 1998 and 1997, short-term investments
consisted of $3.3 million and $2.1 million, respectively, of investment-grade
corporate notes, with maturities at such date of less than one-year. The
aggregate fair value of such securities approximates amortized cost at December
31, 1998 and 1997. Such investments at December 31, 1998 included a $0.9 million
investment in Duke Power Company corporate notes.

LONG-TERM INVESTMENTS

         At December 31, 1998 and 1997, the Partnership had $6.5 million and
$10.0 million, respectively, invested in investment-grade corporate notes, which
have varying maturities until 2003. These securities are classified as
held-to-maturity securities and are stated at amortized cost. The aggregate fair
value of such securities approximates amortized cost at December 31, 1998 and
1997.

NOTE 5. INVENTORIES

         Inventories are valued at the lower of cost (based on weighted average
cost method) or market. The major components of inventories were as follows:

<TABLE>
<CAPTION>
                                          DECEMBER 31,
                                   --------------------------
                                      1998           1997
                                   ----------     ----------
                                        (IN THOUSANDS)
<S>                                <C>            <C>       
Gasolines ....................     $    4,224     $    3,448
Propane ......................          1,503          3,428
Butanes ......................          1,654          2,102
MTBE .........................            641            630
Other products ...............          1,704          1,473
Materials and supplies .......          3,666          4,110
                                   ----------     ----------
           Total .............     $   13,392     $   15,191
                                   ==========     ==========
</TABLE>

             During 1998 the Partnership recorded $3.5 million of expense to
reduce the costs of product inventories to market values. The costs of
inventories did not exceed market values at December 31, 1998 and 1997.


                                      F-10

<PAGE>   43


                TE PRODUCTS PIPELINE COMPANY LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 6. PROPERTY, PLANT AND EQUIPMENT

         Major categories of property, plant and equipment were as follows:

<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                                                              ---------------------
                                                                1998         1997
                                                              --------     --------
                                                                  (IN THOUSANDS)
<S>                                                           <C>          <C>     
Land and right of way ...................................     $ 33,512     $ 33,405
Line pipe and fittings ..................................      447,785      443,355
Storage tanks ...........................................       95,584       86,425
Buildings and improvements ..............................        6,825        6,101
Machinery and equipment .................................      150,833      140,798
Construction work in progress ...........................       25,987       27,660
                                                              --------     --------
           Total property, plant and equipment ..........     $760,526     $737,744
           Less accumulated depreciation and amortization      192,960      170,063
                                                              --------     --------
                Net property, plant and equipment .......     $567,566     $567,681
                                                              ========     ========
</TABLE>

         Depreciation and amortization expense was $24.6 million, $23.8 million
and $23.4 million for the years ended December 31, 1998, 1997 and 1996,
respectively.

NOTE 7. LONG TERM DEBT

SENIOR NOTES

         On January 27, 1998, the Partnership completed the issuance of $180
million principal amount of 6.45% Senior Notes due 2008, and $210 million
principal amount of 7.51% Senior Notes due 2028 (collectively the "Senior
Notes"). The 6.45% Senior Notes due 2008 are not subject to redemption prior to
January 15, 2008. The 7.51% Senior Notes due 2028 may be redeemed at any time
after January 15, 2008, at the option of the Partnership, in whole or in part,
at a premium. Net proceeds from the issuance of the Senior Notes totaled
approximately $386 million and was used to repay in full the $61.0 million
principal amount of the 9.60% Series A First Mortgage Notes, due 2000, and the
$265.5 million principal amount 10.20% Series B First Mortgage Notes, due 2010.
The premium for the early redemption of the First Mortgage Notes totaled $70.1
million. The Partnership recorded an extraordinary charge of $73.5 million
during the first quarter of 1998, which represents the redemption premium of
$70.1 million and unamortized debt issue costs related to the First Mortgage
Notes of $3.4 million.

         The Senior Notes do not have sinking fund requirements. Interest on the
Senior Notes is payable semiannually in arrears on January 15 and July 15 of
each year. The Senior Notes are unsecured obligations of the Partnership and
will rank on a parity with all other unsecured and unsubordinated indebtedness
of the Partnership. The indenture governing the Senior Notes contains covenants,
including, but not limited to, covenants limiting (i) the creation of liens
securing indebtedness and (ii) sale and leaseback transactions. However, the
indenture does not limit the Partnership's ability to incur additional
indebtedness.

         At December 31, 1998, the estimated fair value of the Senior Notes was
approximately $406.6 million. Market prices for recent transactions and rates
currently available to the Partnership for debt with similar terms and
maturities were used to estimate fair value.

OTHER LONG TERM DEBT

         In connection with the purchase of the fractionation assets from DEFS
as of March 31, 1998, TEPPCO Colorado received a $38 million bank loan from
SunTrust Bank. Proceeds from the loan were received on April 21, 1998. TEPPCO
Colorado paid interest to DEFS at a per annum rate of 5.75% on the amount of the
total purchase 



                                      F-11

<PAGE>   44

                TE PRODUCTS PIPELINE COMPANY LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



price outstanding for the period from March 31, 1998 until April 21, 1998. The
SunTrust loan bears interest at a rate of 6.53%, which is payable quarterly
beginning in July 1998. The principal balance of the loan is payable in full on
April 21, 2001. The Partnership is guarantor on the loan. At December 31, 1998,
the estimated fair value of the loan was approximately $39.3 million. Market
prices for recent transactions and rates currently available to the Partnership
for debt with similar terms and maturities were used to estimate fair value.

NOTE 8. CONCENTRATIONS OF CREDIT RISK

         The Partnership's primary market areas are located in the Northeast,
Midwest and Southwest regions of the United States. The Partnership has a
concentration of trade receivable balances due from major integrated oil
companies, independent oil companies and other pipelines and wholesalers. These
concentrations of customers may affect the Partnership's overall credit risk in
that the customers may be similarly affected by changes in economic, regulatory
or other factors. The Partnership's customers' historical and future credit
positions are thoroughly analyzed prior to extending credit. The Partnership
manages its exposure to credit risk through credit analysis, credit approvals,
credit limits and monitoring procedures, and for certain transactions may
utilize letters of credit, prepayments and guarantees.

NOTE 9. QUARTERLY DISTRIBUTIONS OF AVAILABLE CASH

         The Partnership makes quarterly cash distributions of all of its
Available Cash, generally defined as consolidated cash receipts less
consolidated cash disbursements and cash reserves established by the general
partner in its sole discretion or as required by the terms of the Notes.
Generally, distributions are made 98.9899% to the Parent Partnership and 1.0101%
to the general partner.

         For the years ended December 31, 1998, 1997 and 1996, cash
distributions totaled $56.8 million, $49.0 million and $45.2 million,
respectively. The distribution increases reflect the Partnership's success in
improving cash flow levels. On February 5, 1999, the Partnership paid a cash
distribution of $14.7 million for the quarter ended December 31, 1998.

NOTE 10. UNIT OPTION PLAN

         During 1994, the Company adopted the Texas Eastern Products Pipeline
Company 1994 Long Term Incentive Plan ("1994 LTIP"). The 1994 LTIP provides key
employees with an incentive award whereby a participant is granted an option to
purchase Limited Partner Units together with a stipulated number of Performance
Units. Under the provisions of the 1994 LTIP, no more than one million options
and two million Performance Units may be granted. Each Performance Unit creates
a credit to a participant's Performance Unit account when earnings exceed a
threshold, which was $1.00, $1.25 and $1.875 per Unit for the awards granted in
1994, 1995 and 1997, respectively. Performance Units grants were 80,000, 70,000
and 11,000 Performance Units during 1994, 1995 and 1997, respectively. No
Performance Units were granted during 1996 and 1998. When earnings for a
calendar year (exclusive of certain special items) exceed the threshold, the
excess amount is credited to the participant's Performance Unit account. The
balance in the account may be used to exercise Limited Partner Unit options
granted in connection with the Performance Units or may be withdrawn two years
after the underlying options expire, usually 10 years from the date of grant.
Under the agreement for such Limited Partner Unit options, the options become
exercisable in equal installments over periods of one, two, and three years from
the date of the grant. Options may also be exercised by normal means once
vesting requirements are met. A summary of Limited Partner Unit options granted
under the terms of the 1994 LTIP is presented below:



                                      F-12

<PAGE>   45


                TE PRODUCTS PIPELINE COMPANY LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                              OPTIONS           OPTIONS
                                                            OUTSTANDING       EXERCISABLE            RANGE
                                                            -------------     -------------     ----------------
<S>                                                        <C>                <C>              <C>   
Outstanding at December 31, 1995 .......................         106,878            10,210      $13.81 - $14.34
    Became exercisable .................................              --            35,664      $13.81 - $14.34
    Exercised ..........................................         (13,580)          (13,580)     $13.81 - $14.34
                                                            ------------      ------------ 
Outstanding at December 31, 1996 .......................          93,298            32,294      $13.81 - $14.34
    Granted ............................................          11,100                --               $21.66
    Became exercisable .................................              --            37,674      $13.81 - $14.34
    Exercised ..........................................         (11,870)          (11,870)     $13.81 - $14.34
                                                            ------------      ------------ 
Outstanding at December 31, 1997 .......................          92,528            58,098      $13.81 - $21.66
    Granted ............................................         111,000                --               $25.69
    Became exercisable .................................              --            26,993      $13.81 - $21.66
    Exercised ..........................................         (12,732)          (12,732)     $13.81 - $14.34
                                                            ------------      ------------ 
Outstanding at December 31, 1998 .......................         190,796            72,359      $13.81 - $25.69
                                                            ============      ============ 
</TABLE>


         As discussed in Note 2, SFAS 123, "Accounting for Stock-Based
Compensation," allows a company to adopt a fair value based method of accounting
for its stock-based compensation plans. The Partnership has elected to retain
the intrinsic value method of APB No. 25 for recognizing stock-based expense.
The exercise price of all options awarded under the 1994 LTIP equaled the market
price of the Parent Partnership's Units on the date of grant. Accordingly, no
compensation was recognized at the date of grant. Had compensation expense been
determined consistent with SFAS 123, compensation expense related to option
grants would have totaled $31,158, $37,138 and $93,771 during 1996, 1997 and
1998, respectively. Under the provisions of SFAS 123, the pro forma disclosures
above include only the effects of Unit options granted by the Partnership
subsequent to December 31, 1994. During this initial phase-in period, the
disclosures as required by SFAS 123 are not representative of the effects on
reported net income for future years as options vest over several years and
additional awards may be granted in subsequent years.

         For purposes of determining compensation costs using the provisions of
SFAS 123, the fair value of 1997 and 1998 option grants were determined using
the Black-Scholes option-valuation model. The key input variables used in
valuing the options were: risk-free interest rate - 6.3% and 5.5% for 1997 and
1998, respectively; dividend yield - 7.2% and 7.8% for 1997 and 1998,
respectively; Unit price volatility - 18% for 1997 and 1998; expected option
lives - five years and six years for 1997 and 1998, respectively.

NOTE 11. LEASES

         The Partnership utilizes leased assets in several areas of its
operations. Total rental expense during 1998, 1997 and 1996 was $4.4 million,
$3.9 million and $2.5 million, respectively. The minimum rental payments under
the Partnership's various operating leases for the years 1999 through 2003 are
$4.1 million, $3.8 million, $3.4 million, $1.8 million and $1.8 million,
respectively. Thereafter, payments aggregate $5.9 million through 2007.

         In May 1997, the Partnership completed construction to connect the
pipeline system to Colonial Pipeline Company's ("Colonial") pipeline at
Beaumont, Texas. The Partnership entered into a 10-year capacity lease with
Colonial, whereby the Partnership guaranteed a minimum monthly through-put rate
for the connection. The minimum lease payments related to this agreement are
included in the amounts disclosed above.



                                      F-13

<PAGE>   46

                TE PRODUCTS PIPELINE COMPANY LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 12. EMPLOYEE BENEFITS

RETIREMENT PLANS

         The Company's employees are included with other affiliates of Duke
Energy in a noncontributory, trustee-administered pension plan. Through December
31, 1998, the plan provided retirement benefits (i) for eligible employees of
certain subsidiaries, including the Company, that are generally based on an
employee's years of benefit accrual service and highest average eligible
earnings, and (ii) for eligible employees of certain other subsidiaries under a
cash balance formula. In 1998, a significant amount of lump sum payouts were
made from the plan resulting in a settlement gain of $10 million. The Company's
portion of this gain was $0.6 million. Effective January 1, 1999 the benefit
formula under the plan in which the Company participates, was changed to a cash
balance formula. Under a cash balance formula, a plan participant accumulates a
retirement benefit based upon a percentage of current pay, which may vary with
age and years of service, and current interest credits.

         During 1998, Duke Energy adopted SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits", which required the
restatement of prior year data. This restatement did not change the net periodic
expense or the funded status of the retirement or post retirement benefit plans.
The components of net pension benefit costs for the years ended December 31,
1998, 1997 and 1996 were as follows (in thousands):

<TABLE>
<CAPTION>
                                                              1998           1997          1996
                                                            --------       --------       --------
<S>                                                        <C>            <C>            <C>     
Service cost benefit earned during the year ...........     $  1,699       $  1,509       $  1,414
Interest cost on projected benefit obligation .........        2,041          2,359          2,157
Expected return on plan assets ........................       (1,555)        (1,773)        (1,641)
Amortization of prior service cost ....................          (27)           (30)           (39)
Amortization of net transition asset ..................           (5)            (3)            --
Settlement gain .......................................         (554)            --             --
                                                            --------       --------       --------
      Net pension benefits costs ......................     $  1,599       $  2,062       $  1,891
                                                            ========       ========       ========

The assumptions affecting pension expense include:
                                                                1998           1997           1996
                                                            --------       --------       --------
Discount rate .........................................         6.75%          7.25%          7.50%
Salary increase .......................................         4.67%          4.15%          4.80%
Expected long-term rate of return on plan assets ......         9.25%          9.25%          9.18%
</TABLE>

         Duke Energy also sponsors employee savings plans which cover
substantially all employees. Plan contributions on behalf of the Company of $1.4
million, $1.4 million and $1.3 million were expensed in 1998, 1997 and 1996,
respectively.


OTHER POSTRETIREMENT BENEFITS


         Duke Energy and most of its subsidiaries provide certain health care
and life insurance benefits for retired employees on a contributory and
non-contributory basis. Employees become eligible for these benefits if they
have met certain age and service requirements at retirement, as defined in the
plans. Under plan amendments effective late 1998 and early 1999, health care
benefits for future retirees were changed to limit employer contributions and
medical coverage.


         Such benefit costs are accrued over the active service period of
employees to the date of full eligibility for the benefits. The net unrecognized
transition obligation, resulting from the implementation of accrual accounting,
is being amortized over approximately 20 years.



                                      F-14

<PAGE>   47

                TE PRODUCTS PIPELINE COMPANY LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



         Duke Energy is using an investment account under section 401(h) of the
Internal Revenue Code, a retired lives reserve (RLR) and multiple voluntary
employees' beneficiary association (VEBA) trusts under section 501(c)(9) of the
Internal Revenue Code to partially fund post retirement benefits. The 401(h)
vehicles, which provide for tax deductions for contributions and tax-free
accumulation of investment income, partially fund postretirement health care
benefits. The RLR, which has tax attributes similar to 401(h) funding, partially
funds postretirement life insurance obligations. Certain subsidiaries use the
VEBA trusts to partially fund accrued postretirement health care benefits and
fund post retirement life insurance obligations. The components of net
postretirement benefits cost for the years ended December 31, 1998, 1997 and
1996 were as follows (in thousands):

<TABLE>
<CAPTION>
                                                                         1998           1997           1996
                                                                       --------       --------       --------
<S>                                                                    <C>            <C>            <C>     
Service cost benefit earned during the year ......................     $    439       $    350       $    240
Interest cost on accumulated postretirement benefit obligation ...          796            703            506
Expected return on plan assets ...................................         (240)          (172)          (126)
Amortization of prior service cost ...............................            3              4             --
Amortization of net transition asset .............................          202            202            201
Recognized net actuarial loss ....................................          173             68              4
                                                                       --------       --------       --------
      Net postretirement benefits costs ..........................     $  1,373       $  1,155       $    825
                                                                       ========       ========       ========

      The assumptions affecting postretirement
        benefits expense include:

<CAPTION>
                                                                         1998           1997          1996
                                                                       --------       --------       --------
<S>                                                                   <C>            <C>            <C>  
Discount rate ....................................................         6.75%          7.25%          7.50%
Salary increase ..................................................         4.67%          4.33%          4.84%
Expected long-term rate of return on 401(h) assets ...............         9.25%          9.25%          9.00%
Expected long-term rate of return on RLR assets ..................         6.75%          6.75%          6.50%
Expected long-term rate of return on VEBA assets .................         9.25%          9.25%          9.50%
Assumed tax rate .................................................        39.60%         39.60%         39.60%
</TABLE>

         For measurement purposes, a 5% weighted average rate of increase in the
per capita cost of covered health care benefits was assumed for 1998. The rate
was assumed to decrease gradually to 4.75% for 2005 and remain at that level
thereafter. Assumed health care cost trend rates have a significant effect on
the amounts reported for the health care plans. The below table indicates the
effect on the total service and interest costs component and on the
postretirement benefit obligation of a 1% increase or 1% decrease in the assumed
health care cost trend rates in each future year (in thousands).

<TABLE>
<CAPTION>
                                                                         1%           1%
                                                                      INCREASE     DECREASE
                                                                      --------     --------
<S>                                                                  <C>          <C>      
Effect on total of service and interest cost components .........     $    159     $   (136)
Effect on postretirement benefit obligation .....................     $    404     $   (378)
</TABLE>

POSTEMPLOYMENT BENEFITS

         The Partnership accrues expense for certain benefits provided to former
or inactive employees after employment but before retirement. During 1998, 1997
and 1996, the Partnership recorded $0.5 million, $0.5 million and $0.2 million,
respectively, of expense for such benefits.



                                      F-15

<PAGE>   48

                TE PRODUCTS PIPELINE COMPANY LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 13. CONTINGENCIES

         The Partnership is involved in various claims and legal proceedings
incidental to its business. In the opinion of management, these claims and legal
proceedings will not have a material adverse effect on the Partnership's
consolidated financial position or results of operations.

         The operations of the Partnership are subject to federal, state and
local laws and regulations relating to protection of the environment. Although
the Partnership believes its operations are in material compliance with
applicable environmental regulations, risks of significant costs and liabilities
are inherent in pipeline operations, and there can be no assurance that
significant costs and liabilities will not be incurred. Moreover, it is possible
that other developments, such as increasingly strict environmental laws and
regulations and enforcement policies thereunder, and claims for damages to
property or persons resulting from the operations of the pipeline system, could
result in substantial costs and liabilities to the Partnership. The Partnership
does not anticipate that changes in environmental laws and regulations will have
a material adverse effect on its financial position, operations or cash flows in
the near term.

         The Partnership and the Indiana Department of Environmental Management
("IDEM") have entered into an Agreed Order that will ultimately result in a
remediation program for any on-site and off-site groundwater contamination
attributable to the Partnership's operations at the Seymour, Indiana, terminal.
A Feasibility Study, which includes the Partnership's proposed remediation
program, has been approved by IDEM. IDEM will issue a Record of Decision
formally approving the remediation program. After the Record of Decision has
been issued, the Partnership will enter into an Agreed Order for the continued
operation and maintenance of the program. The Partnership estimates that the
costs of the remediation program being proposed by the Partnership for the
Seymour terminal will not exceed the amount accrued therefore (approximately
$0.8 million at December 31, 1998). In the opinion of the Company, the
completion of the remediation program being proposed by the Partnership, if such
program is approved by IDEM, will not have a material adverse impact on the
Partnership's financial condition, results of operations or liquidity.

         In 1997, the Company initiated a program to prepare the Partnership's
process controls and business computer systems for the "Year 2000" issue.
Process controls are the automated equipment including hardware and software
systems which run operational activities. Business computer systems are the
computer hardware and software used by the Partnership. The Partnership is
utilizing both internal and external resources to identify, test, remediate or
replace all non-compliant computerized systems and applications. The Company
continues to evaluate appropriate courses of corrective action, including
replacement of certain systems whose associated costs would be recorded as
assets and amortized. The Partnership incurred approximately $1.3 million of
expense during 1997 and 1998 related to the Year 2000 issue. The Company
estimates the remaining amounts required to address the Year 2000 issue will be
approximately $4.0 million (unaudited). A portion of such costs would have been
incurred as part of normal system and application upgrades. In certain cases,
the timing of expenditures has been accelerated due to the Year 2000 issue.
Although the Company believes this estimate to be reasonable, due to the
complexities of the Year 2000 issue, there can be no assurance that the actual
costs to address the Year 2000 issue will not be significantly greater.

         The Partnership has adopted a three-phase Year 2000 program consisting
of: Phase I Preliminary Assessment; Phase II - Detailed Assessment and
Remediation Planning; and Phase III - Remediation Activities and Testing. The
Partnership has completed Phase I; Phase II is nearing completion; and Phase III
is ongoing. Remediation Activities and Testing for systems deemed most critical
are scheduled to be completed by mid-1999, with testing of all process controls
and business computer systems completed during the third quarter of 1999.

         With respect to its third-party relationships, the Partnership has
contacted its suppliers and service providers to assess their state of Year 2000
readiness. Information continues to be updated regularly, thus the 



                                      F-16

<PAGE>   49

                TE PRODUCTS PIPELINE COMPANY LIMITED PARTNERSHIP

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Partnership anticipates receiving additional information in the near future that
will assist in determining the extent to which the Partnership may be vulnerable
to those third parties' failure to remediate their Year 2000 issues. However,
there can be no assurance that the systems of other companies, on which the
Partnership's systems rely, will be timely converted, or converted in a manner
that is compatible with the Partnership's systems, or that any such failures by
other companies would not have a material adverse effect on the Partnership.

         Despite the Partnership's efforts to address and remediate its Year
2000 issue, there can be no assurance that all process controls and business
computer systems will continue without interruption through January 1, 2000 and
beyond. The complexity of identifying and testing all embedded microprocessors
that are installed in hardware throughout the pipeline system used for process
or flow control, transportation, security, communication and other systems may
result in unforeseen operational failures. Although the amount of potential
liability and lost revenue cannot be estimated, failures that result in
substantial disruptions of business activities could have a material adverse
effect on the Partnership. In order to mitigate potential disruptions, the
Partnership will complete contingency plans for its critical systems, processes
and external relationships by mid-fourth quarter of 1999.

         Substantially all of the petroleum products transported and stored by
the Partnership are owned by its customers. At December 31, 1998, the
Partnership had approximately 17.7 million barrels of products in its custody
owned by customers. The Partnership is obligated for the transportation, storage
and delivery of such products on behalf of its customers. The Partnership
maintains insurance it believes to be adequate to cover product losses through
circumstances beyond its control.

NOTE 14. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

<TABLE>
<CAPTION>
                                                   FIRST        SECOND        THIRD       FOURTH
                                                  QUARTER       QUARTER      QUARTER      QUARTER
                                                  --------      --------     --------     --------
                                                      (IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<S>                                               <C>           <C>          <C>          <C>     
1998
Operating revenues ..........................     $ 50,205      $ 51,560     $ 54,229     $ 55,789
Operating income ............................       19,514        18,929       19,722       20,476
Income before extraordinary item (1) ........       13,289        12,674       12,864       13,705
Net income (loss) ...........................      (60,220)       12,674       12,864       13,705

1997
Operating revenues ..........................     $ 55,425      $ 52,649     $ 53,305     $ 60,714
Operating income ............................       24,945        20,516       19,437       26,652
Net income ..................................       17,977        13,259       11,560       19,129
</TABLE>

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

(1)  Extraordinary item reflects the $73.5 million loss related to the early
     extinguishment of the First Mortgage Notes on January 27, 1998.





                                      F-17



<PAGE>   50


                               INDEX TO EXHIBITS


<TABLE>
<CAPTION>
  Exhibit
  Number                          Description
  -------                         -----------
<S>           <C>
     3.1       Certificate of Formation of TEPPCO Colorado, LLC (Filed as
               Exhibit 3.2 to Form 10-Q of TEPPCO Partners, L.P. (Commission
               File No. 1-10403) for the quarter ended March 31, 1998 and
               incorporated herein by reference)

     3.2       Amended and Restated Agreement of Limited Partnership of TE
               Products Pipeline Company, Limited Partnership, effective July
               21, 1998 (Filed as Exhibit 3.2 to Form 8-K of TEPPCO Partners,
               L.P. (Commission File No. 1-10403) dated July 21, 1998 and
               incorporated herein by reference).

     4.1       Form of Indenture between TE Products Pipeline Company, Limited
               Partnership and The Bank of New York, as Trustee, dated as of
               January 27, 1998 (Filed as Exhibit 4.3 to TE Products Pipeline
               Company, Limited Partnership's Registration Statement on Form S-3
               (Commission File No. 333-38473) and incorporated herein by
               reference).

     10.1      Assignment and Assumption Agreement, dated March 24, 1988,
               between Texas Eastern Transmission Corporation and the Company
               (Filed as Exhibit 10.8 to the Registration Statement of TEPPCO
               Partners, L.P. (Commission File No. 33-32203) and incorporated
               herein by reference).

     10.2      Texas Eastern Products Pipeline Company 1997 Employee Incentive
               Compensation Plan executed on July 14, 1997 (Filed as Exhibit 10
               to Form 10-Q of TEPPCO Partners, L.P. (Commission File No.
               1-10403) for the quarter ended September 30, 1997 and
               incorporated herein by reference).

     10.3      Agreement Regarding Environmental Indemnities and Certain Assets
               (Filed as Exhibit 10.5 to Form 10-K of TEPPCO Partners, L.P.
               (Commission File No. 1-10403) for the year ended December 31,
               1990 and incorporated herein by reference).

     10.4      Texas Eastern Products Pipeline Company Management Incentive
               Compensation Plan executed on January 30, 1992 (Filed as Exhibit
               10 to Form 10-Q of TEPPCO Partners, L.P. (Commission File No.
               1-10403) for the quarter ended March 31, 1992 and incorporated
               herein by reference).

     10.5      Texas Eastern Products Pipeline Company Long-Term Incentive
               Compensation Plan executed on October 31, 1990 (Filed as Exhibit
               10.9 to Form 10-K of TEPPCO Partners, L.P. (Commission File No.
               1-10403) for the year ended December 31, 1990 and incorporated
               herein by reference).

     10.6      Form of Amendment to Texas Eastern Products Pipeline Company
               Long-Term Incentive Compensation Plan (Filed as Exhibit 10.7 to
               the Partnership's Form 10-K (Commission File No. 1-10403) for the
               year ended December 31, 1995 and incorporated herein by
               reference).

     10.7      Employees' Savings Plan of Panhandle Eastern Corporation and
               Participating Affiliates (Effective January 1, 1991) (Filed as
               Exhibit 10.10 to the Partnership's Form 10-K (Commission File No.
               1-10403) for the year ended December 31, 1990 and incorporated
               herein by reference).

     10.8      Retirement Income Plan of Panhandle Eastern Corporation and
               Participating Affiliates (Effective January 1, 1991) (Filed as
               Exhibit 10.11 to Form 10-K of TEPPCO Partners, L.P. (Commission
               File No. 1-10403) for the year ended December 31, 1990 and
               incorporated herein by reference).

     10.9      Panhandle Eastern Corporation Key Executive Retirement Benefit
               Equalization Plan, adopted December 20, 1993; effective January
               1, 1994 (Filed as Exhibit 10.12 to Form 10-K of Panhandle Eastern
               Corporation (Commission File No. 1-8157) for the year ended
               December 31, 1993 and incorporated herein by reference).

     10.10     Employment Agreement with William L. Thacker, Jr. (Filed as
               Exhibit 10 to Form 10-Q of TEPPCO Partners, L.P. (Commission File
               No. 1-10403) for the quarter ended September 30, 1992 and
               incorporated herein by reference).

     10.11     Texas Eastern Products Pipeline Company 1994 Long Term Incentive
               Plan executed on March 8, 1994 (Filed as Exhibit 10.1 to Form
               10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for
               the quarter ended March 31, 1994 and incorporated herein by
               reference).

     10.12     Panhandle Eastern Corporation Key Executive Deferred Compensation
               Plan established effective January 1, 1994 (Filed as Exhibit 10.2
               to Form 10-Q of TEPPCO Partners, L.P. (Commission File No.
               1-10403) for the quarter ended March 31, 1994 and incorporated
               herein by reference).

     10.13     Asset Purchase Agreement between Duke Energy Field Services, Inc.
               and TEPPCO Colorado, LLC, dated March 31, 1998 (Filed as Exhibit
               10.14 to Form 10-Q of TEPPCO Partners, L.P. (Commission File No.
               1-10403) for the quarter ended March 31, 1998 and incorporated
               herein by reference).

     10.14     Credit Agreement between TEPPCO Colorado, LLC, SunTrust Bank,
               Atlanta, and Certain Lenders, dated April 21, 1998 (Filed as
               Exhibit 10.15 to Form 10-Q of TEPPCO Partners, L.P. (Commission
               File No. 1-10403) for the quarter ended March 31, 1998 and
               incorporated herein by reference).

     10.15     First Amendment to Credit Agreement between TEPPCO Colorado, LLC,
               SunTrust Bank, Atlanta, and Certain Lenders, effective June 29,
               1998 (Filed as Exhibit 10.15 to Form 10-Q of TEPPCO Partners,
               L.P. (Commission File No. 1-10403) for the quarter ended June 30,
               1998 and incorporated herein by reference).

     10.16     Form of Employment Agreement between the Company and O. Horton
               Cunningham, Ernest P. Hagan, Thomas R. Harper, David L. Langley,
               Charles H. Leonard and James C. Ruth, dated December 1, 1998
               (Filed as Exhibit 10.20 to Form 10-K of TEPPCO Partners, L.P.
               (Commission File No. 1-10403) for the year ended December 31,
               1998 and incorporated herein by reference).

     *24       Powers of Attorney.

     *27       Financial Data Schedule as of and for the year ended December 31,
               1998.
</TABLE>

     -----------------------
     * Filed herewith.