<PAGE>   1
================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-Q


              [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                                        
                                       OR
                                        
             [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934
                                        
                    FOR THE QUARTER ENDED SEPTEMBER 30, 1998

                          COMMISSION FILE NO. 1-10403

                             TEPPCO PARTNERS, L.P.

             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

               DELAWARE                          76-0291058
        (STATE OF INCORPORATION               (I.R.S. EMPLOYER
            OR ORGANIZATION)                IDENTIFICATION NUMBER)

                          COMMISSION FILE NO. 1-13603

                TE PRODUCTS PIPELINE COMPANY, LIMITED PARTNERSHIP

             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                DELAWARE                         76-0329620
         (STATE OF INCORPORATION              (I.R.S. EMPLOYER
            OR ORGANIZATION)                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)

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

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<PAGE>   2

                                PRELIMINARY NOTE

         TEPPCO Partners, L.P. (the "Parent Partnership") is a holding company
that owns all of its assets and conducts all of its business through TE Products
Pipeline Company, Limited Partnership (the "Operating Partnership"), and TEPPCO
Colorado, LLC ("TEPPCO Colorado"), which is a wholly-owned subsidiary of the
Operating Partnership. The Operating Partnership is owned 99% by the Parent
Partnership and 1% by Texas Eastern Products Pipeline Company, which serves as
general partner of the Parent Partnership and the Operating Partnership. No
separate financial information for the Operating Partnership has been provided
or incorporated by reference in this report because: (i) the Parent Partnership
does not itself conduct any operations but rather all operations of the Parent
Partnership and its subsidiaries are conducted by the Operating Partnership and
its subsidiary; (ii) the Parent Partnership has no material assets other than
its ownership interest in the Operating Partnership; and (iii) all of the assets
and liabilities shown in the consolidated financial statements for the Parent
Partnership are located at the Operating Partnership and TEPPCO Colorado.
Collectively, the Parent Partnership, the Operating Partnership and TEPPCO
Colorado are referred to as "the Partnership."



                                       2

<PAGE>   3

                         PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                             TEPPCO PARTNERS, L.P.

                           CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                       SEPTEMBER 30,     DECEMBER 31,
                                                                            1998              1997
                                                                       -------------     ------------
                                                                        (UNAUDITED)

<S>                                                                      <C>               <C>
                                     ASSETS

Current assets:
 Cash and cash equivalents ......................................        $  32,118         $  43,961
 Short-term investments .........................................              840             2,105
 Accounts receivable, trade .....................................           16,038            19,826
 Inventories ....................................................           21,889            21,094
 Other ..........................................................            2,355             4,173
                                                                         ---------         ---------
     Total current assets .......................................           73,240            91,159
                                                                         ---------         ---------
Property, plant and equipment, at cost (Net of accumulated
  depreciation and amortization of $187,513 and $170,063) .......          566,264           567,681
Investments .....................................................            9,171            10,010
Intangible assets ...............................................           37,383              --
Other assets ....................................................            5,623             5,059
                                                                         ---------         ---------
     Total assets ...............................................        $ 691,681         $ 673,909
                                                                         =========         =========

                       LIABILITIES AND PARTNERS' CAPITAL

Current liabilities:
  Current maturities, First Mortgage Notes ......................        $     --          $  17,000
  Accounts payable and accrued liabilities ......................            7,536             9,615
  Accounts payable, general partner .............................            3,457             3,735
  Accrued interest ..............................................            6,194            10,539
  Other accrued taxes ...........................................            6,439             6,246
  Other .........................................................            7,822             6,740
                                                                         ---------         ---------
    Total current liabilities ...................................           31,448            53,875
                                                                         ---------         ---------
First Mortgage Notes ............................................             --             309,512
Senior Notes ...................................................           389,714              --   
Other long-term debt ...........................................            38,000              --   
Other liabilities and deferred credits .........................             3,407             4,462
Minority interest ..............................................             2,317             3,093
Partners' capital:
  General partner's interest ....................................           (1,433)            5,760
  Limited partners' interests ...................................          228,228           297,207
                                                                         ---------         ---------
    Total partners' capital .....................................          226,795           302,967
                                                                         ---------         ---------
    Total liabilities and partners' capital .....................        $ 691,681         $ 673,909
                                                                         =========         =========
</TABLE>


          See accompanying Notes to Consolidated Financial Statements.



                                       3

<PAGE>   4

                             TEPPCO PARTNERS, L.P.

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

 
<TABLE>
<CAPTION>
                                                     THREE MONTHS    THREE MONTHS     NINE MONTHS    NINE MONTHS
                                                         ENDED          ENDED            ENDED          ENDED
                                                     SEPTEMBER 30,   SEPTEMBER 30,   SEPTEMBER 30,   SEPTEMBER 30,
                                                          1998           1997            1998            1997
                                                     -------------   -------------   -------------   -------------

<S>                                                    <C>            <C>            <C>            <C>      
Operating revenues:
 Transportation - Refined products ...............     $  35,316      $  28,359      $  90,533      $  81,020
 Transportation - LPGs ...........................        10,625         14,843         42,202         52,587
 Mont Belvieu operations .........................         2,848          3,765          7,936          9,385
 Other ...........................................         5,440          6,338         15,323         18,387
                                                       ---------      ---------      ---------      ---------
  Total operating revenues .......................        54,229         53,305        155,994        161,379
                                                       ---------      ---------      ---------      ---------

Costs and expenses:
 Operating, general and administrative ...........        18,366         16,807         51,182         48,697
 Operating fuel and power ........................         7,550          8,723         20,315         22,853
 Depreciation and amortization ...................         6,651          6,039         19,356         17,740
 Taxes - other than income taxes .................         1,940          2,299          6,976          7,191
                                                       ---------      ---------      ---------      ---------
  Total costs and expenses .......................        34,507         33,868         97,829         96,481
                                                       ---------      ---------      ---------      ---------

  Operating income ...............................        19,722         19,437         58,165         64,898

Interest expense .................................        (7,550)        (8,368)       (22,227)       (25,339)
Interest capitalized .............................           121            214            638          1,186
Other income - net ...............................           571            277          2,251          2,051
                                                       ---------      ---------      ---------      ---------
  Income before minority interest and
   extraordinary loss on debt extinguishment .....        12,864         11,560         38,827         42,796
Minority interest ................................          (130)          (116)          (392)          (432)
                                                       ---------      ---------      ---------      ---------
 Income before extraordinary loss
  on debt extinguishment .........................        12,734         11,444         38,435         42,364
                                                       ---------      ---------      ---------      ---------
Extraordinary loss on debt extinguishment,
 net of minority interest ........................          --             --          (72,767)          --
                                                       ---------      ---------      ---------      ---------
  Net income (loss) ..............................     $  12,734      $  11,444      $ (34,332)     $  42,364
                                                       =========      =========      =========      =========

Basic income (loss) per Limited Partner Unit:

  Income before extraordinary loss .............       $    0.39      $    0.36      $    1.19      $    1.35
  Extraordinary loss ...........................            --             --            (2.26)           -- 
                                                         ---------      ---------      ---------      ---------
  Net income (loss) ............................       $    0.39      $    0.36      $   (1.07)     $    1.35
                                                         =========      =========      =========      =========

Diluted income (loss) per Limited Partner Unit:


  Income before extraordinary loss .............       $    0.39      $    0.36      $    1.19      $    1.35
  Extraordinary loss ...........................             --             --           (2.26)           -- 
                                                       ---------      ---------      ---------      ---------

   Net income (loss) ............................      $    0.39      $    0.36      $   (1.07)     $    1.35
                                                       =========      =========      =========      =========
</TABLE>



          See accompanying Notes to Consolidated Financial Statements.



                                       4
<PAGE>   5


                             TEPPCO PARTNERS, L.P.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                              NINE MONTHS      NINE MONTHS
                                                                                 ENDED            ENDED
                                                                              SEPTEMBER 30,   SEPTEMBER 30,
                                                                                  1998           1997
                                                                              -------------   -------------

<S>                                                                            <C>            <C>
Cash flows from operating activities:
   Net income (loss) .....................................................     $ (34,332)     $  42,364
   Adjustments to reconcile net income (loss) to cash provided by
    operating activities:
    Depreciation and amortization ........................................        19,356         17,740
    Extraordinary loss on early extinguishment of debt,
     not of minority interest ............................................        72,767           --   
    Loss (gain) on sale of property, plant and equipment .................          (356)           467
    Equity in loss of affiliate ..........................................           182           --   
    Decrease in accounts receivable, trade ...............................         3,788          2,845
    Increase in inventories ..............................................          (795)           (75)
    Decrease (increase) in other current assets ..........................         1,818         (2,449)
    Decrease in accounts payable and accrued expenses ....................        (5,427)        (9,112)
    Other ................................................................        (1,615)          (736)
                                                                               ---------      ---------
     Net cash provided by operating activities ...........................        55,386         51,044
                                                                               ---------      ---------

Cash flows from investing activities:
 Proceeds from investments ...............................................         2,105         17,970
 Purchases of investments ................................................          --           (3,906)
 Insurance proceeds related to damaged asset .............................          --            1,046
 Purchase of fractionator assets and related intangible assets ...........       (40,000)          --   
 Proceeds from the sale of property, plant and equipment .................           525          1,377
 Capital expenditures ....................................................       (15,200)       (24,549)
                                                                               ---------      ---------
     Net cash used in investing activities ...............................       (52,570)        (8,062)
                                                                               ---------      ---------

Cash flows from financing activities:
 Principal payment, First Mortgage Notes .................................      (326,512)       (13,000)
 Prepayment premium, First Mortgage Notes ................................       (70,093)          --   
 Issuance of Senior Notes ................................................       389,694           --   
 Debt issuance costs, Senior Notes .......................................        (3,651)          --   
 Proceeds from term-loan .................................................        38,000           --   
 Distributions ...........................................................       (42,097)       (36,298)
                                                                               ---------      ---------
     Net cash used in financing activities ...............................       (14,659)       (49,298)
                                                                               ---------      ---------

 Net decrease in cash and cash equivalents ...............................       (11,843)        (6,316)

 Cash and cash equivalents at beginning of period ........................        43,961         34,047
                                                                               ---------      ---------
 Cash and cash equivalents at end of period ..............................     $  32,118      $  27,731
                                                                               =========      =========

 SUPPLEMENTAL DISCLOSURE OF CASH FLOWS:
 Interest paid during the period (net of capitalized interest) ...........     $  26,210      $  32,376
                                                                               =========      =========
</TABLE>



          See accompanying Notes to Consolidated Financial Statements.



                                       5

<PAGE>   6

                             TEPPCO PARTNERS, L.P.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION

         TEPPCO Partners, L.P. (the "Parent Partnership") is a Delaware limited
partnership which operates through TE Products Pipeline Company, Limited
Partnership (the "Operating Partnership"), a Delaware limited partnership, in
which TEPPCO Partners, L.P. holds a 99% interest as the sole limited partner.
TEPPCO Colorado, LLC ("TEPPCO Colorado"), a Delaware limited liability company,
is a wholly-owned subsidiary of the Operating Partnership. Texas Eastern
Products Pipeline Company (the "Company"), an indirect wholly-owned subsidiary
of Duke Energy Corporation ("Duke Energy"), owns a 1% general partner interest
in both the Parent Partnership and the Operating Partnership. Collectively, the
Parent Partnership, the Operating Partnership and TEPPCO Colorado are referred
to as "the Partnership." The Company's 1% general partner interest in the
Operating Partnership, is accounted for as a minority interest. The Company
executed an Amended and Restated Agreement of Limited Partnership of both the
Parent Partnership and the Operating Partnership, effective July 21, 1998 (the
"Restated Partnership Agreements"). The Restated Partnership Agreements
eliminate or update obsolete provisions of the prior partnership agreements and
make certain other changes, none of which adversely affect any Unitholder of the
Partnership.

         The accompanying unaudited consolidated financial statements reflect
all adjustments, which are, in the opinion of management, of a normal and
recurring nature and necessary for a fair statement of the financial position of
the Partnership as of September 30, 1998, and the results of operations and cash
flows for the periods presented. The results of operations for the nine months
ended September 30, 1998, are not necessarily indicative of results of
operations for the full year 1998. The interim financial statements should be
read in conjunction with the Partnership's consolidated financial statements and
notes thereto presented in the TEPPCO Partners, L.P. Annual Report on Form 10-K
for the year ended December 31, 1997. Certain amounts from the prior year have
been reclassified to conform to current presentation.

         On July 21, 1998, the Partnership announced a two-for-one split of the
Parent Partnership's outstanding Units. The Unit split entitled Unitholders of
record at the close of business on August 10, 1998 to receive one additional
Unit for each Unit held. All references to the number of Units and per Unit
amounts in the consolidated financial statements and related notes have been
restated to reflect the two-for-one split for all periods presented.

         Basic net income per Limited Partner Unit is computed by dividing net
income, after deduction of the general partner's interest, by the weighted
average number of Limited Partner Units outstanding (a total of 29,000,000 Units
as of September 30, 1998, including the effect of the two-for-one split noted
above). The general partner's percentage interest in net income is based on its
percentage of cash distributions from Available Cash for each Period (see Note
7. Cash Distributions). The general partner was allocated $3.2 million (9.38%)
of the net loss for the nine months ended September 30, 1998, and $3.3 million
(7.73%) of the net income for the nine months ended September 30, 1997.

         Diluted net income per Limited Partner Unit is similar to the
computation of basic net income per Limited Partner Unit above, except that the
denominator was increased to include the dilutive effect of outstanding Unit
options by application of the treasury stock method. For the quarters ended
September 30, 1998 and 1997, the denominator was increased by 41,884 Units and
37,700 Units, respectively. For the nine months ended September 30, 1998 and
1997, the denominator was increased by 46,468 Units and 33,872 Units,
respectively.



                                       6

<PAGE>   7


                              TEPPCO PARTNERS, L.P.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
                                   (UNAUDITED)


NOTE 2. ACCOUNTING POLICY CHANGES

         In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." This statement establishes standards for reporting and
display of comprehensive income and its components in a full set of financial
statements. The Partnership adopted SFAS No. 130 during the first quarter of
1998 without impact on its financial condition or results of operations.

         In June 1997, the FASB also issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." This statement establishes
standards for reporting information about operating segments in annual financial
statements and requires that enterprises report selected information about
operating segments in interim reports. The Partnership will adopt this standard
during the fourth quarter of 1998. As SFAS No. 131 establishes standards for
reporting and display, the Partnership does not expect the adoption of this
statement to have a material impact on its financial condition or results of
operations.

         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.

NOTE 3. RELATED PARTY TRANSACTIONS

         As of March 31, 1998, TEPPCO Colorado purchased two fractionation
facilities located in Weld County, Colorado, from Duke Energy Field Services,
Inc. ("DEFS"), a wholly-owned subsidiary of Duke Energy. TEPPCO Colorado and
DEFS entered into a twenty year fractionation agreement ("Fractionation
Agreement"), whereby TEPPCO Colorado will receive a variable fee for all
fractionated volumes delivered to DEFS. The purchase price of these transactions
was $40 million. Intangible assets include $38 million of value assigned to the
Fractionation Agreement, which will be amortized on a straight-line method over
the term of the Fractionation Agreement. The remaining purchase price of $2.0
million was allocated to the fractionator facilities purchased. TEPPCO Colorado
and DEFS also entered into an Operations and Management Agreement whereby DEFS
will operate and maintain the fractionation facilities. TEPPCO Colorado pays
DEFS a set volumetric rate for all fractionated volumes delivered to DEFS.

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 equivalents. At September 30,
1998, short-term investments included $0.8 million of investment-grade corporate
notes, which mature within one year. All short-term investments are classified
as held-to-maturity securities and are stated at amortized cost. The aggregate
fair value of such securities approximates amortized cost at September 30,
1998.

LONG-TERM INVESTMENTS

         At September 30, 1998, the Partnership had $9.2 million invested in
investment-grade corporate notes, which have varying maturities from 1999
through 2002. These securities are classified as held-to-maturity



                                       7

<PAGE>   8

                             TEPPCO PARTNERS, L.P.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                   (UNAUDITED)


securities and are stated at amortized cost. At September 30, 1998, the
aggregate fair value and unrealized gain for these securities was $9.3 million
and $0.1 million, respectively. Such investments as of September 30, 1998,
included a $0.9 million investment in corporate notes of Duke Power Company, an
affiliate of the Company.

NOTE 5. INVENTORIES

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

<TABLE>
<CAPTION>
                                         SEPTEMBER 30,      DECEMBER 31,
                                             1998               1997
                                         -------------      ------------

<S>                                   <C>             <C>     
Gasolines .........................        $  2,123        $  3,779
Propane ...........................           6,745           6,872
Butanes ...........................           4,872           3,152
Fuel oils .........................             825              82
Other products ....................           3,801           3,099
Materials and supplies ............           3,523           4,110
                                           --------        --------
       Total ......................        $ 21,889        $ 21,094
                                           ========        ========
</TABLE>

         The costs of inventories were lower than market at September 30, 1998,
and December 31, 1997.

NOTE 6. LONG TERM DEBT

SENIOR NOTES

         On January 27, 1998, the Operating 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 Operating 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 (including $0.7 million allocated to
minority interest), 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 Operating
Partnership and will rank on a parity with all other unsecured and
unsubordinated indebtedness of the Operating 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.

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,



                                       8


<PAGE>   9

                             TEPPCO PARTNERS, L.P.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
                                   (UNAUDITED)

1998. TEPPCO Colorado paid interest to DEFS at a per annum rate of 5.75% on the
amount of the total purchase 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 Operating Partnership is
guarantor on the loan.

NOTE 7. CASH DISTRIBUTIONS

         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.

         On August 7, 1998, the Partnership paid the second quarter cash
distribution of $0.45 per Unit (adjusted for the two-for-one Unit split
discussed in Note 1) to Unitholders of record on July 31, 1998. Additionally, on
October 16, 1998, the Partnership declared a cash distribution of $0.45 per Unit
(adjusted for the two-for-one Unit split discussed in Note 1) for the quarter
ended September 30, 1998. The third quarter distribution was paid on November 6,
1998, to Unitholders of record on October 30, 1998.

         The Company receives incremental incentive distributions of 15%, 25%
and 50% on quarterly distributions of Available Cash that exceed $0.275, $0.325
and $0.45 per Unit, respectively (adjusted for the two-for-one Unit
split discussed in Note 1). During the nine months ended September 30, 1998 and
1997, incentive distributions paid to the Company totaled $3.6 million and $2.3
million, respectively.

NOTE 8. COMMITMENTS AND 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 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.
The Partnership is currently negotiating with IDEM the clean-up levels to be
attained at the Seymour terminal. The Partnership estimates that the costs of
the remediation program to be proposed by the Partnership for the Seymour
terminal will not exceed the amount accrued therefore (approximately $1.0
million at September 30, 1998). In the opinion of the Company, the completion of
the remediation program to be 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.



                                       9

<PAGE>   10
                             TEPPCO PARTNERS, L.P.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
                                   (UNAUDITED)


         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 Company estimates that the amounts required to address
the Year 2000 issue during 1998 and 1999 will range between approximately $5.0
million and $6.0 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. This process is effectively complete; however, 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, 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 intends to develop contingency plans for its critical systems,
processes and external relationships.

         Substantially all of the petroleum products transported and stored by
the Partnership are owned by the Partnership's customers. At September 30, 1998,
the Partnership had approximately 18.6 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 9. SUBSEQUENT EVENTS

         On October 16, 1998, the Partnership announced an agreement to acquire
substantially all of the assets of Duke Energy Transport and Trading Company
("DETTCO") from Duke Energy. The transaction is expected to close by December 1,
1998, subject to regulatory approval. In consideration for such assets, Duke
Energy will



                                       10

<PAGE>   11
                             TEPPCO PARTNERS, L.P.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                   (UNAUDITED)

receive Class B Limited Partnership Units ("Class B Units"). The Class B Units
will be substantially identical to the 29,000,000 Limited Partner Units
currently outstanding, but they will not be listed on the New York Stock
Exchange. The Class B Units will be convertible into Limited Partner Units upon
approval by the Limited Partner Unitholders. If conversion is not approved
within approximately sixteen months, the holder of the Class B Units will have
the right to sell them to the Partnership at 95.5% of the market price of the
Limited Partner Units.

         DETTCO, based in Oklahoma City, gathers, stores, transports and markets
crude oil principally in Oklahoma and Texas; operates two trunkline natural gas
liquids ("NGL") pipelines in South Texas; and distributes lube oil to industrial
and commercial accounts through its wholly-owned subsidiary, Lubrication
Services, Inc. DETTCO's crude oil gathering, transportation and storage assets
include two major systems and various smaller systems. The Red River System,
located on the Texas-Oklahoma border, is the larger system, with 960 miles of
pipeline and 750,000 barrels of storage. The majority of crude oil is delivered
to Cushing, Oklahoma via connecting pipelines, or to two local refineries. The
South Texas System, located west of Houston, consists of 550 miles of pipeline
and 550,000 barrels of storage. The majority of the crude oil on this system is
delivered on a tariff basis to the Houston refining complex. Other crude oil
assets, located primarily in Texas and Louisiana, consist of 310 miles of
pipeline and 240,000 barrels of storage. The NGL pipelines are located along the
Texas Gulf Coast. The Dean NGL Pipeline consists of 338 miles of pipeline
originating in South Texas and terminating at Mont Belvieu, Texas, and has a
capacity of 20,000 barrels per day. The Dean NGL Pipeline is currently supported
by a 17,000 barrel per day take-or-pay commitment through 2002. The Wilcox NGL
Pipeline is 90 miles long, has a capacity of 5,000 barrels per day and currently
transports third party volumes at contract rates.



                                       11

<PAGE>   12


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

         The Partnership's operations consist primarily of the transportation,
storage and terminaling of petroleum products. 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.

         The Partnership's revenues are derived primarily 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. Effective March 31,
1998, the Partnership's operations included the fractionation of natural gas
liquids (see Note 3 - Related Party Transactions in Item 1).

         The following information is provided to facilitate increased
understanding of the 1998 and 1997 interim consolidated financial statements and
accompanying notes presented in Item 1. 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.

RESULTS OF OPERATIONS

         Net income for the quarter ended September 30, 1998 was $12.7 million,
compared with net income of $11.4 million for the 1997 third quarter. The
increase in net income resulted primarily from a $0.9 million increase in
operating revenues and a $0.8 million decrease in interest expense. These
increases in net income were partially offset by a $0.6 million increase in
costs and expenses.

         For the nine months ended September 30, 1998, the Partnership reported
a net loss of $34.3 million. The net loss included an extraordinary loss for
early extinguishment of debt of $72.8 million, net of $0.7 million allocated to
minority interest. Excluding the extraordinary loss, net income would have been
$38.4 million for the first nine months of 1998, compared with net income of
$42.4 million for the corresponding period in 1997. The $4.0 million decrease in
income before loss on debt extinguishment resulted primarily from a $5.4 million
decrease in operating revenues, a $1.3 million increase in costs and expenses
and a $0.5 million decrease in capitalized interest. These variances were
partially offset by a $3.1 million decrease in interest expense. See discussion
below of factors affecting net income for the comparative periods.

         See volume and average tariff information below:

<TABLE>
<CAPTION>
                                        QUARTER ENDED                           NINE MONTHS ENDED
                                        SEPTEMBER 30,        PERCENTAGE           SEPTEMBER 30,        PERCENTAGE
                                    ---------------------     INCREASE    -------------------------     INCREASE
                                       1998        1997      (DECREASE)       1998          1997       (DECREASE)
                                    ---------   ---------    ----------   ----------     ----------    ----------

<S>                                <C>          <C>          <C>         <C>           <C>             <C>
VOLUMES DELIVERED
(in thousands of barrels)
    Refined products                  37,103       31,226        19%         96,797        90,820           7%
    LPGs                               6,845        9,041       (24%)        22,656        29,052         (22%)
    Mont Belvieu operations            6,890        7,782       (11%)        18,352        20,601         (11%)
                                    --------     --------      ----       ---------     ---------        ----
      Total                           50,838       48,049         6%        137,805       140,473          (2%)
                                    ========     ========      ====       =========     =========        ====

AVERAGE TARIFF PER BARREL
   Refined products                 $   0.95     $   0.91         4%      $    0.94     $    0.89           6%
   LPGs                                 1.55         1.64        (5%)          1.86          1.81           3%
   Mont Belvieu operations              0.14         0.14       --             0.15          0.14           7%
     Average system tariff          $   0.92     $   0.92       --        $    0.98     $    0.97           1%
                                    ========     ========      ====       =========     =========        ====
</TABLE>



                                       12

<PAGE>   13

RESULTS OF OPERATIONS - (CONTINUED)

         Refined products transportation revenues increased $7.0 million for the
quarter ended September 30, 1998, compared with the prior-year quarter, as a
result of a 19% increase in volumes delivered and a 4% increase in the refined
products average tariff per barrel. The increase in the volumes delivered
resulted from favorable price differentials of motor fuel, distillate, jet fuel
and natural gasoline in Midwest market areas served by the Partnership. The
increase in the refined products average tariff per barrel reflects (i) an
increase in the percentage of long-haul deliveries, (ii) higher tariff rates on
barrels originating from the pipeline connection with Colonial Pipeline
Company's ("Colonial") pipeline at Beaumont, Texas, and (iii) $0.6 million of
revenue recognized in September 1998 related to a contract settlement and
deficit transportation deferred in prior periods.

         LPGs transportation revenues decreased $4.2 million for the quarter
ended September 30, 1998, compared with the third quarter of 1997, due to a 24%
decrease in volumes delivered and a 5% decrease in the LPGs average tariff per
barrel. The decrease was comprised of a $3.9 million decrease in propane revenue
and a $0.3 million decrease in butane revenue. The decrease in propane revenue
was primarily due to greater amounts of Canadian supply being imported into the
Partnership's Midwest and Northeast market areas as well as lower demand from
a Midwest petrochemical facility served by the Partnership. The decrease in
butane revenue was attributable to lower feed stock demand from Philadelphia
area refineries. The decrease in the LPGs average tariff per barrel resulted
from the decreased percentage of long-haul deliveries.

         For the nine months ended September 30, 1998, refined products
transportation revenues increased $9.5 million, compared with the corresponding
period in 1997, due to a 7% increase in volumes delivered and a 6% increase in
the refined products average tariff per barrel. The increase in volumes
delivered was due to favorable Midwest price differentials for motor fuel,
distillate, jet fuel and natural gasoline. Additionally, the full-period impact
of increased delivery capacity from the expansion of the Ark-La-Tex system
between Shreveport, Louisiana, and El Dorado, Arkansas, which was placed in
service on March 31, 1997, and increased origin capability from the completion
of the connection with Colonial's pipeline on May 1, 1997 contributed to the
increase. The 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, barrels originating from the pipeline connection with
Colonial's pipeline and tariff rate increases on selective refined products
tariffs, averaging 1.7%, effective July 1, 1997.

         LPGs transportation revenues decreased $10.4 million during the nine
months ended September 30, 1998, compared with the same period in 1997, due to a
22% decrease in volumes delivered, partially offset by a 3% increase in the LPGs
average tariff per barrel. Propane revenues decreased $10.9 million, or 24%,
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. The
decrease in propane revenue was partially offset by a $0.5 million increase in
butane revenues primarily due to increased feed stock demand at refineries in
the upper Midwest and the resumption of operations during the second quarter of
1997 at a Northeast area refinery served by the Partnership. The 3% increase in
the LPGs average tariff per barrel resulted primarily from a 33% decrease in
short-haul propane deliveries, which have lower tariffs, along the upper Texas
Gulf Coast.

         Revenues generated from Mont Belvieu operations decreased during both
the quarter and nine months ended September 30, 1998, compared with the
corresponding periods in 1997, primarily due to lower storage revenue, lower
product receipt charges and decreased propane dehydration fees. Additionally,
Mont Belvieu shuttle deliveries decreased 11% during both the quarter and nine
months ended September 30, 1998, compared with the prior year periods, due to
lower petrochemical demand for LPGs along the upper Texas Gulf Coast.

         Other operating revenues decreased $0.9 million during the third
quarter of 1998, as compared with the third quarter of 1997, primarily due to
lower amounts of butane received in the Midwest for summer storage, unfavorable
product location exchange differentials incurred to position system inventory,
and decreased refined products terminaling revenues. These decreases were
partially offset by $1.8 million of operating revenues from the fractionator
facilities acquired on March 31, 1998.



                                       13

<PAGE>   14

RESULTS OF OPERATIONS - (CONTINUED)

         During the nine months ended September 30, 1998, other operating
revenues decreased $3.1 million, as compared to the same period in 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 $3.7 million of
operating revenues from the fractionator facilities acquired on March 31, 1998.

         Costs and expenses increased $0.6 million for the quarter ended
September 30, 1998, compared with the third quarter of 1997, primarily due to a
$1.6 million increase in operating, general and administrative expenses and a
$0.6 million increase in depreciation and amortization expense, partially offset
by a $1.2 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 an insurance
recovery of environmental litigation costs recorded in the third quarter of
1997, increased product measurement losses and increased contract services.
These increases in operating, general and administrative expenses were partially
offset by expenses recorded for environmental remediation at the Partnership's
Seymour, Indiana, terminal in the third quarter of 1997. Depreciation and
amortization expense increased as a result of amortization of the value assigned
to the Fractionation Agreement beginning on March 31, 1998. The decrease in
operating fuel and power expense was primarily due to increased mainline pumping
efficiencies and lower summer peak power rates in Arkansas. The decrease in
taxes - other than income, was attributable to a credit recorded during the
third quarter of 1998 to reflect downward revisions of 1997 estimated property
taxes.

         Costs and expenses increased $1.3 million for the nine-months ended
September 30, 1998, compared with the same period in 1997, primarily due to a
$2.5 million increase in operating, general and administrative expenses and a
$1.6 million increase in depreciation and amortization expense, partially offset
by a $2.5 million decrease in operating fuel and power expense. The increase in
operating, general and administrative expenses was primarily due to the same
factors noted above related to the third quarter, as well as the full-period
impact of expense related to the capacity lease with Colonial, which commenced
in May 1997, and $0.5 million of expense recorded to write down the book-value
of product inventory to market-value at June 30, 1998. Depreciation and
amortization expense increased as a result of amortization of the value assigned
to the Fractionation Agreement beginning on March 31, 1998, and the completion
of construction projects throughout 1997 and 1998. The decrease in operating
fuel and power expense was primarily due to lower long-haul LPGs transportation
volumes, increased mainline pumping efficiencies and lower summer peak power
rates in Arkansas.

         Interest expense decreased during both the quarter and nine-months
ended September 30, 1998, compared with the same periods in 1997, as a result of
the payment on January 27, 1998 of the remaining $326.5 million principal
balance of the First Mortgage Notes, partially offset by interest expense on the
Senior Notes issued on January 27, 1998, and interest expense of the $38 million
term-loan used to finance the purchase of the fractionation assets on March 31,
1998. Additionally, the $13 million principal payment on the First Mortgage
Notes in March 1997, resulted in lower interest expense during the nine-month
period ended September 30, 1998, compared with the same period in 1997.

         Capitalized interest decreased $0.5 million during the nine-month
period ended September 30, 1998, compared with the corresponding period in 1997,
as a result of lower construction balances related to capital projects.

         Other income increased during the quarter ended September 30, 1998,
compared with the third quarter of 1997, primarily due to a $0.5 million loss on
the sale of non-carrier assets in August 1997. During the nine months ended
September 30, 1998, other income increased from the corresponding period in 1997
as a result of a $0.4 million gain on the sale of non-carrier assets in June
1998. During both the quarter and nine-months ended September 30, 1998, compared
with the same periods in 1997, interest income decreased as a result of lower
cash balances in 1998.



                                       14

<PAGE>   15

FINANCIAL CONDITION AND LIQUIDITY

         Net cash from operations for the nine-month period ended September 30,
1998, totaled $55.4 million, comprised primarily of $57.8 million of income
before extraordinary loss on early extinguishment of debt and charges for
depreciation and amortization, partially offset by $2.2 million of cash used for
working capital changes. This compares with cash flows from operations of $51.0
million for the corresponding period in 1997, which was comprised of $60.1
million of income before charges for depreciation and amortization, partially
offset by $9.5 million used for working capital changes. The decrease in cash
used for working capital changes during the nine month period ended September
30, 1998, as compared with the same period in 1997, resulted primarily from
lower interest payments during 1998 and collection in 1998 of receivable
balances from insurance claims settled in September 1997. Net cash from
operations for the nine months ended September 30, 1998 and 1997 included
interest payments of $26.8 million and $33.6 million, respectively.

         Cash flows used in investing activities during the first nine months of
1998 included $40.0 million for the purchase price of the fractionation assets
and related intangible assets and $15.2 million of capital expenditures,
partially offset by $2.1 million from investment maturities and $0.5 million
received from the sale of non-carrier assets. Cash flows used in investing
activities during the first nine months of 1997 included $24.5 million of
capital expenditures and $3.9 million of additional cash investments, partially
offset by $18.0 million from investment maturities, $1.4 million received from
the sale of non-carrier assets and $1.0 million of insurance proceeds related to
the replacement value of a 20-inch diameter auxiliary pipeline at the Red River
in central Louisiana, which was damaged in 1994 and subsequently removed from
service. Capital expenditures are expected to total approximately $23 million
for the full year of 1998. The Partnership revises capital spending periodically
in response to changes in cash flows and operations. Interest income earned on
all investments is included in cash from operations.

         On January 27, 1998, the Operating 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 Operating 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 (including $0.7 million allocated to minority
interest), 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 Operating
Partnership and will rank on a parity with all other unsecured and
unsubordinated indebtedness of the Operating 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 beginning in July
1998. The principal balance of the loan is payable in full on April 21, 2001.
The Operating Partnership is guarantor on the loan.

         On July 21, 1998, the Partnership announced a two-for-one split of the
Parent Partnership's outstanding Units. The Unit split entitled Unitholders of
record at the close of business on August 10, 1998 to receive one additional
Unit for each Unit held.



                                       15

<PAGE>   16
FINANCIAL CONDITION AND LIQUIDITY - (CONTINUED)

         The Partnership paid cash distributions of $42.1 million during the
nine months ended September 30, 1998. Additionally, on October 16, 1998, the
Partnership declared a cash distribution of $0.45 per Unit (adjusted for the
two-for-one Unit split) for the three months ended September 30, 1998. The third
quarter cash distribution was paid on November 6, 1998 to Unitholders of record
on October 30, 1998.

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.
The Partnership is currently negotiating with IDEM the clean-up levels to be
attained at the Seymour terminal. The Partnership estimates that the costs of
the remediation program to be proposed by the Partnership for the Seymour
terminal will not exceed the amount accrued therefore (approximately $1.0
million at September 30, 1998). In the opinion of the Company, the completion of
the remediation program to be 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 Company estimates that the amounts required to address
the Year 2000 issue during 1998 and 1999 will range between approximately $5.0
million and $6.0 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.



                                       16


<PAGE>   17

OTHER MATTERS - (CONTINUED)

         With respect to its third-party relationships, the Partnership has
contacted its suppliers and service providers to assess their state of Year 2000
readiness. This process is effectively complete; however, 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, 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 intends to develop contingency plans for its critical systems,
processes and external relationships.

     Pending Transactions

         On October 16, 1998, the Partnership announced an agreement to acquire
substantially all of the assets of Duke Energy Transport and Trading Company
("DETTCO") from Duke Energy. The transaction is expected to close by December 1,
1998, subject to regulatory approval. In consideration for such assets, Duke
Energy will receive Class B Limited Partnership Units ("Class B Units"). The
Class B Units will be substantially identical to the 29,000,000 Limited Partner
Units currently outstanding, but they will not be listed on the New York Stock
Exchange. The Class B Units will be convertible into Limited Partner Units upon
approval by the Limited Partner Unitholders. If conversion is not approved
within approximately sixteen months, the holder of the Class B Units will have
the right to sell them to the Partnership at 95.5% of the market price of the
Limited Partner Units.

         DETTCO, based in Oklahoma City, gathers, stores, transports and markets
crude oil principally in Oklahoma and Texas; operates two trunkline natural gas
liquids ("NGL") pipelines in South Texas; and distributes lube oil to industrial
and commercial accounts through its wholly-owned subsidiary, Lubrication
Services, Inc. DETTCO's crude oil gathering, transportation and storage assets
include two major systems and various smaller systems. The Red River System,
located on the Texas-Oklahoma border, is the larger system, with 960 miles of
pipeline and 750,000 barrels of storage. The majority of crude oil is delivered
to Cushing, Oklahoma via connecting pipelines, or to two local refineries. The
South Texas System, located west of Houston, consists of 550 miles of pipeline
and 550,000 barrels of storage. The majority of the crude oil on this system is
delivered on a tariff basis to the Houston refining complex. Other crude oil
assets, located primarily in Texas and Louisiana, consist of 310 miles of
pipeline and 240,000 barrels of storage. The NGL pipelines are located along the
Texas Gulf Coast. The Dean NGL Pipeline consists of 338 miles of pipeline
originating in South Texas and terminating at Mont Belvieu, Texas, and has a
capacity of 20,000 barrels per day. The Dean NGL Pipeline is currently supported
by a 17,000 barrel per day take-or-pay commitment through 2002. The Wilcox NGL
Pipeline is 90 miles long, has a capacity of 5,000 barrels per day and currently
transports third party volumes at contract rates.

                                     *****

         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



                                       17

<PAGE>   18

OTHER MATTERS - (CONTINUED)

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 substantially realized, that they will
have the expected consequences to or effect on the Partnership or its business
or operations. For additional discussion of such risks and uncertainties, see
TEPPCO Partners, L.P.'s 1997 Annual Report on Form 10-K.



                                       18
<PAGE>   19


                           PART II. OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

     (a)      Exhibits:

<TABLE>
<CAPTION>
              Exhibit
              Number                         Description
              ------                         -----------

<S>                         <C>
               3.1          Certificate of Limited Partnership of the Partnership (Filed as Exhibit
                            3.2 to the Registration Statement of TEPPCO Partners, L.P. (Commission
                            File No. 33-32203) and incorporated herein by reference).

               3.2          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).

               3.3          Amended and Restated Agreement of Limited Partnership of TEPPCO
                            Partners, L.P., effective July 21, 1998 (Filed as Exhibit 3.1 to Form
                            8-K of TEPPCO Partners, L.P. (Commission File No. 1-10403) dated July
                            21, 1998 and incorporated herein by reference).

               3.4          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 Certificate representing Units (Filed as Exhibit 4.1 to the
                            Registration Statement of TEPPCO Partners, L.P. (Commission File No.
                            33-32203) and incorporated herein by reference).

               4.2          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 Form 10-K of
                            TEPPCO Partners, L.P. (Commission File No. 1-10403) for the year ended
                            December 31, 1995 and incorporated herein by reference).
</TABLE>



                                       19


<PAGE>   20


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED).

<TABLE>
<S>                         <C> 
               10.7         Employees' Savings Plan of Panhandle Eastern Corporation and
                            Participating Affiliates (Effective January 1, 1991) (Filed as Exhibit
                            10.10 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).

               10.8         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.

               22.1         Subsidiaries of the Partnership (Filed as Exhibit 22.1 to the
                            Registration Statement of TEPPCO Partners, L.P. (Commission File No.
                            33-32203) and incorporated herein by reference).

               27*          Financial Data Schedules as of and for the nine months ended September
                            30, 1998.
</TABLE>

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

     (b) Reports on Form 8-K filed during the quarter ended September 30, 1998:

         Report dated July 21, 1998, on Form 8-K was filed on July 23, 1998,
         pursuant to Item 5. and Item 7. of such form.

Items 1, 2, 3, 4 and 5 of Part II were not applicable and have been omitted.



                                       20


<PAGE>   21

                                   SIGNATURE

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

                               TEPPCO Partners, L.P.
                               (Registrant)

                               By:  Texas Eastern Products Pipeline Company,
                                    General Partner

                                       /s/  CHARLES H. LEONARD
                               ----------------------------------------------
                                            Charles H. Leonard
                                 Senior Vice President, Chief Financial 
                                          Officer and Treasurer

                               TE Products Pipeline Company, Limited Partnership
                               (Registrant)

                               By:  Texas Eastern Products Pipeline Company,
                                    General Partner

                                      /s/   CHARLES H. LEONARD
                               ----------------------------------------------
                                            Charles H. Leonard
                                 Senior Vice President, Chief Financial 
                                          Officer and Treasurer


Date: November 10, 1998

                                       21

<PAGE>   22
                               INDEX TO EXHIBITS


<TABLE>
<CAPTION>
 EXHIBIT
 NUMBER                         DESCRIPTION
 -------                        -----------

<S>             <C>
   27           Financial Data Schedules as of and for the nine months ended September 30, 1998.
</TABLE>