UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

    For the fiscal year ended December 31, 1995 Commission File No. 2-88526
                              -----------------                     -------

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

For the fiscal year ended December 31, 1995   OR
                          -----------------

[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
                               ---------------

For the transition period from                     to
                               -------------------    -----------------------
Commission file number
                        -----------------------------------------------------

                       PETROLEUM HEAT AND POWER CO., INC.
             -----------------------------------------------------
             (Exact name of registrant as specified in its charter)

Minnesota                                    06-1183025
-----------------------------------         ---------------------------------
(State or other jurisdiction of              (I.R.S. Employer
 incorporation or organization)               Identification No.)

2187 Atlantic Street, Stamford, CT          06902
-----------------------------------         ---------------------------------
(Address of principal executive Offices)    (Zip Code)


         Registrant's telephone number, including area code:  (203) 325-5400
                                                              --------------

         Securities registered pursuant to Section 12(g) of the Act:

         Class A Common Stock
         --------------------
         (Title of Each Class)


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 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 filer pursuant to Item 405 of
Regulation S-K (ss. 229.405 of this chapter) 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. [X]


The aggregate market value of the voting stock held by non-affiliates of the
registrant, as of March 1, 1996 was approximately $73,175,207.

As of March 1, 1996 there were 22,863,204 shares of the Registrant's Class A
Common Stock, 13,223 shares of the Registrant's Class B Common Stock and
2,597,519 shares of the Registrant's Class C Common Stock outstanding.


<PAGE>




                       DOCUMENTS INCORPORATED BY REFERENCE
                       -----------------------------------

         The documents incorporated by reference into this Form 10-K and the
parts hereof into which such documents are incorporated are listed below:

Document                                                        Part
--------                                                        ----

Those portions of the registrant's proxy                        III 
statement for the registrant's 1996 Annual 
Meeting (the "Proxy Statement") that are 
specifically identified herein as incorporated 
by reference into this Form 10-K


                                     PART I

                                ITEM 1. BUSINESS

         Petroleum Heat and Power Co., Inc. (the "Company" or "Petro") is the
largest retail distributor of home heating oil (#2 fuel oil) in the United
States with total sales of $609.5 million for the year ended December 31, 1995.
The Company's results as of December 31, 1995 reflect the combined operations of
its home heating oil division and its propane division until December 20, 1995,
at which time the Company transferred substantially all of its propane operating
assets and related liabilities to a newly formed partnership, Star Gas Partners,
L.P., ("Star Gas Conveyance") and sold a majority of that Partnership to the
public, while retaining a 46.5% minority interest. Petro serves approximately
400,000 customers from 30 branch locations in 27 markets in the Northeast and
Mid-Atlantic, including the metropolitan areas of Boston, New York City,
Baltimore, Providence and Washington, D.C. Despite its leading position in the
home heating oil market, the Company estimates that its heating oil customer
base represents approximately 5% of the residential customers in the Northeast.

         In addition to selling home heating oil, the Company installs and
repairs heating equipment, and to a limited extent, markets other petroleum
products to commercial customers, including diesel fuel and gasoline.

         Installation and repair of heating equipment is provided as a service
by the Company to its customers. The Company considers the provision of service
and installation services to be an integral part of its basic fuel oil business.
Accordingly, the Company regularly provides various service incentives to obtain
and retain customers and such services are not designed to generate profits. The
Company provides home heating equipment repair service on a seven days a week,
52 weeks a year basis, generally within four hours of request. Except in
isolated instances, the Company does not provide service to any person who is
not a customer.

         The Company's volume, cash flow and operating profits before
depreciation and amortization have increased significantly since 1980, primarily
because of its acquisition of other home heat businesses. Since September 1979,
the Company had acquired 167 retail heating oil distributors.



                                      
                                       2
<PAGE>




INVESTMENT IN STAR GAS

         In December 1993, the Company purchased a 29.5% equity interest in Star
Gas for $16.0 million and acquired options to purchase the remaining equity
interest. In connection with this investment, the Company entered into a
management agreement with Star Gas wherein the Company agreed to provide Star
Gas with executive, financial and managerial oversight services. This structure
allowed the Company in 1993 to limit its financial exposure until Star Gas was
operationally restructured.

         In December 1994, the Company completed the acquisition of Star Gas for
approximately $25.9 million, by exercising its right to purchase the remaining
outstanding common equity of Star Gas by paying $3.8 million in cash and issuing
2.5 million shares of the Company's Class A Common Stock.

         The acquisition was accounted for as a purchase and accordingly, the
purchase price was allocated to the underlying assets and liabilities based upon
the Company's estimate of their respective fair value at the date of
acquisition. The fair value of assets acquired was $141.3 million (including
$3.3 million in cash) and liabilities and preferred stock was $109.5 million.
The excess of the purchase price over the fair value of assets acquired and
liabilities assumed was $9.0 million.

         In November 1995, after completing a corporate reorganization involving
substantial personnel reduction, implementation of new pricing policies,
budgeting techniques and safety and training programs, and the centralization of
certain management reporting functions, Star Gas organized Star Gas Partners,
L.P. a Delaware limited partnership ("Partnership") and Star Gas and the
Partnership together organized Star Gas Propane, L.P., a Delaware limited
partnership ("Operating Partnership"). In December 1995, Petro transferred
substantially all of its propane assets and liabilities to Star Gas, and Star
Gas transferred ("Star Gas Conveyance") substantially all of its assets
(including the propane assets transferred by Petro) in exchange for a general
partnership interest in the Operating Partnership and the assumption by the
Operating Partnership of substantially all of the liabilities of Star Gas. The
total value of the assets conveyed to the Operating Partnership was $156.5
million. Concurrently with the Star Gas Conveyance, Star Gas issued
approximately $85.0 million in First Mortgage Notes to certain institutional
investors. In connection with the Star Gas Conveyance, the Operating Partnership
assumed $91.5 million of Star Gas liabilities including the $85.0 million of
First Mortgage Notes; however, Star Gas retained approximately $83.7 million in
cash from the proceeds of the First Mortgage Notes.

         As a result of the foregoing transactions, Star Gas received a 46.5%
equity interest in the Partnership and Petro received distributions from the
public sale of Partnership units of $51.0 million in cash. In order for the
Partnership to begin operations with $6.2 million of working capital, Star Gas
and the Operating Partnership agreed that the amount of debt assumed by the
Operating Partnership would be adjusted upward or downwards to the extent that
the working capital of the Operating Partnership at closing was more or less
than $6.2 million. At closing, the net working capital of the Operating
Partnership was $9.2 million and as a result, $3.0 million was paid to Petro in
January 1996.

                                        3
<PAGE>




         To enhance the Partnership's ability to pay a minimum quarterly
distribution on its common units, Star Gas agreed, subject to certain
limitations, to contribute up to $6.0 million in additional capital to the
Partnership if, and to the extent that, the amount of available cash
constituting operating surplus with respect to any quarter is less than the
amount necessary to distribute the minimum quarterly distribution on all
outstanding common units for such quarter. These funds are now restricted at the
Star Gas level, but will be released to Petro as certain quarterly targets are
achieved.

         With the acquisition of Star Gas on December 7, 1994, and with it
operating as a wholly-owned subsidiary of the Company until December 19, 1995
the Company's operations were classified into two business segments: Home
Heating Oil and Propane. For financial information regarding the Company's
business segments, see note 15 to the Company's Consolidated Financial
Statements included elsewhere herein. As a result of the Star Gas transaction
previously discussed, the Company currently accounts for its investment in the
Partnership following the equity method of accounting.


FUNDAMENTAL CHARACTERISTICS
---------------------------

Unaffected by General Economy
-----------------------------

         The Company's business is relatively unaffected by business cycles. As
home heating oil for residential use is such a basic necessity, variations in
the amount purchased as a result of general economic conditions have been
limited.

Customer Stability
------------------

         The Company has a relatively stable customer base due to the tendency
of homeowners to remain with their traditional distributors or home buyers to
remain with the previous homeowner's distributor. While the Company loses
approximately 90% of the customers acquired in an acquisition (during the first
six years), the Company is able to retain a majority of the homes underlying the
original customer list purchased.

         Approximately 90% of the Company's customers receive their home heating
oil pursuant to an automatic delivery system without the customer having to make
an affirmative purchase decision. These deliveries are scheduled by computer,
based upon each customer's historical consumption patterns and prevailing
weather conditions. The Company delivers home heating oil approximately six
times during the year to the average customer. The Company's practice is to bill
customers promptly after delivery. In addition, approximately 40% of the
Company's customers are on the Company's budget payment plan, whereby their
estimated annual oil purchases and service contract are paid for in a series of
equal monthly payments over a twelve month period.

Weather Stability
-----------------

         The Company's business is directly related to the heating needs of its
customers. Accordingly the weather can have a material effect on the Company's
sales in any particular year, such as in 1990 and 1991, which were the first and
third warmest years in the century. However, the temperatures over the past 30
years have been relatively stable, and as a result have not had a significant
impact on the Company's performance except on a short-term basis.

                                    4
<PAGE>




Insulation from Oil Price Volatility
------------------------------------

         The Company has been insulated from the volatility of wholesale oil
prices due to its policy of maintaining on average no more than an eight day
inventory of home heating oil and to limit activity to the retail distribution
of home heating oil. Although the price of crude oil has been volatile,
historically this has not materially affected the performance of the Company
since over the years it has added an increasing gross margin onto its wholesale
costs, whatever their level, designed to offset the impact of inflation, account
attrition and weather. As a result, variability in supply prices has affected
net sales, but generally has not affected gross profit or net income, and as
such, the Company's margins are most meaningfully measured on a per gallon basis
and not as a percentage of sales. While fluctuations in wholesale prices have
not significantly affected demand to date, it is possible that significant
wholesale price increases over an extended period of time could have the effect
of encouraging conservation. If demand were reduced and the Company was unable
to increase its gross profit margin or reduce its operating expenses, the effect
of the decrease in volume would be to reduce net income.

         Approximately 9% of the Company's total sales are made to individual
customers under an agreement pre-establishing the maximum sales price of oil
over a twelve month period. The maximum price at which oil is sold to these
individual customers is renegotiated in April of each year in light of then
current market conditions. The Company has historically purchased approximately
half of the oil it sells to these maximum guaranteed price customers in advance
and at a fixed cost. Should events occur after a customer sales price is
established that increases the cost of oil above the amount anticipated, margins
for the maximum guaranteed price customers whose oil was not purchased in
advance would be lower than expected, while those customers whose oil was
purchased in advance would be unaffected. Conversely, should events occur during
this period that decrease the cost of oil below the amount anticipated, margins
for the maximum guaranteed price customers whose oil was purchased in advance
could be lower than expected, while those customers whose oil was not purchased
in advance would be unaffected or higher than expected.

Conversions to Natural Gas
--------------------------

         The rate of conversion from the use of home heating oil to natural gas
is primarily affected by the relative prices of the two products and the cost of
replacing an oil fired heating system with one that uses natural gas. The
Company believes that approximately 1% of its customer base annually converts
from home heating oil to natural gas. Even when natural gas had a significant
price advantage over home heating oil, such as in 1980 and 1981 when there were
government controls on natural gas prices or, for a short time in 1990 and 1991,
during the Persian Gulf crisis, the Company's customers converted to natural gas
at only a 2% annual rate. During the latter part of 1991 and through 1995,
natural gas conversions have returned to their approximate 1% historical annual
rate as the prices for the two products have been at parity.

Business Strategy
-----------------

         Current management assumed control of the Company in 1979 and
restructured the Company's fuel oil operation by consolidating operating
branches and focusing primarily on the retail sale of home heating oil. After
this reorganization, management perceived an opportunity to achieve substantial
growth and increased profitability by acquiring fuel oil distributors in new and
existing markets.


                                       5
<PAGE>




Acquisition Strategy
--------------------

         The Company's acquisition strategy is to continue to grow its fuel oil
operations through the acquisition and integration of additional distributors in
existing and new markets. The Company's presence in the propane distribution
industry will also further increase through acquisitions completed by the Star
Gas Partnership.

         The Company acquires two types of fuel oil distributors. The first type
are relatively small and are easily integrated into the Company's branch system,
resulting in significant economies of scale through the centralization of
accounting, data processing, fuel oil purchasing, credit and marketing functions
of the acquired distributor. The second type are larger, stand-alone businesses
that cannot be integrated, but are usually in new markets. Acquisitions of these
businesses not only provide attractive investment returns, but also provide hubs
for future expansion.

         Factors that impact the Company's ability to continue following its
current operating strategy in the foreseeable future include its ability to
continue to grow through acquisitions, while replacing lost customers through
internal marketing.

Operating Strategy
------------------

         The Company has historically achieved operating economies of scale
through the centralization of accounting, financial, fuel oil purchasing, credit
and marketing functions. The Company has recently identified the best operating
practices being employed by its branches and is currently implementing those
procedures throughout the Company. Petro has also recently begin to implement an
operating strategy designed to both capitalize upon its size and utilize
developments in technology to become more operationally efficient. This strategy
is also designed to improve customer retention, by increasing customer
satisfaction through the utilization of advanced information processing and
telecommunication systems. Such systems are currently in use by other
distribution businesses, but not generally employed by other retail heating oil
companies. Since joining the Company in August 1994, the Chief Operations
Officer, Thomas M. Isola, has led the Company in a disciplined and systematic
manner towards this goal.

         In March 1995, the Company engaged one of the nations leading
consulting firms in a study to improve Petro's financial performance and
organizational effectiveness. Towards achieving this objective, Petro's senior
management in a joint effort with their consultants, identified programs
directed towards reducing customer attrition and organizational expenses. While
some programs require integration over a longer span of time, other programs
identified in the study are currently being implemented to benefit near-term
financial performance.

Marketing Strategy
------------------

         The Company has continued to refine its marketing programs by targeting
"quality-minded homeowners" as the key customer segment in the marketplace who
value premium home heating oil delivery and service. This effort, led by the
Senior Vice President of Marketing and Sales, Alex Szabo, consists of two
phases. The first phase is to implement "Best Marketing and Sales Training
Practices" at all branches Company-wide in order to efficiently solicit and
effectively gain new customers. The second phase is designed to enhance total
customer satisfaction by implementing a continuous "Quality Service Skills
Training Program" in all branches, thereby improving customer loyalty and
retention.


                                       6

<PAGE>

Customers and Sales
-------------------

         The Company currently serves approximately 400,000 customers in the
following 27 markets:

NEW YORK                   MASSACHUSETTS                NEW JERSEY
Bronx, Queens and          Boston (Metropolitan)        Camden
 Kings Counties            Northeastern Massachusetts   Neptune
Dutchess County             (Centered in Lawrence)      Newark (Metropolitan)
Staten Island              Springfield                  North Brunswick
Eastern Long Island        Worcester                    Rockaway
Western Long Island                                     Trenton

CONNECTICUT                PENNSYLVANIA                 RHODE ISLAND
Bridgeport--New Haven      Allentown                    Providence
Hartford (Metropolitan)    Berks County                 Newport
Litchfield County           (Centered in Reading)
Southern Fairfield         Bucks County                 MARYLAND/VIRGINIA/D.C.
 County                     (Centered in Southampton)   Baltimore (Metropolitan)
                           Lebanon County               Washington, D.C.
                            (Centered in Palmyra)        (Metropolitan)

         Approximately 85% of the Company's #2 fuel oil sales are made to
homeowners, with the balance to industrial, commercial and institutional
customers. Historically, the Company has lost a portion of its customer base
each year for various reasons, including customer relocation, price competition
and conversions to natural gas.


SUPPLIERS

         The Company obtains its fuel oil in either barge or truckload
quantities, and has contracts with approximately 70 third party storage
terminals for the right to temporarily store its heating oil at their
facilities. Purchases are made pursuant to supply contracts or on the spot
market. The Company has market price based contracts for substantially all its
petroleum requirements with 13 different suppliers, the majority of which have
significant domestic sources for their product, and many of which have been
suppliers to the Company for over 10 years. The Company's current suppliers are:
Amerada Hess Corporation; Bayway Refining Co.; Citgo Petroleum Corp.; Coastal
New England and New York; Exxon Company USA; Global Petroleum Corp.; Louis
Dreyfus Energy Corp.; Mieco, Inc.; Mobil Oil Corporation; Northeast Petroleum, a
division of Cargill, Inc.; Sprague Energy; Stuart Petroleum Company and Sun Oil
Company. Typically the Company's supply contracts have terms of 12 months and
generally expire in May or June of each year. All of the supply contracts
provide for maximum and in some cases minimum quantities, but do not establish
in advance the price at which fuel oil is sold, which, like the Company's price
to its customers, is established from time to time.

         The Company believes that its policy of contracting for substantially
all its supply needs with diverse and reliable sources will enable it to obtain
sufficient product should unforeseen shortages develop in worldwide supplies.
The Company further believes that relations with its current suppliers are
satisfactory.

                                       7

<PAGE>


COMPETITION

         The Company's business is highly competitive. The Company competes with
fuel oil distributors offering a broad range of services and prices, from full
service distributors, like the Company, to those offering delivery only.
Competition with other companies in the fuel oil industry is based primarily on
customer service and price.

EMPLOYEES

         As of December 31, 1995 the Company had 2,579 employees, of whom 796
were oil truck drivers, oil dispatchers and mechanics, 766 were heating
equipment repairmen, 208 were sales personnel and sales support, 558 were
customer service and credit personnel, and 251 were management and staff.
Approximately 530 of these employees are seasonal, and management expects to
rehire the majority of them for the next heating season. Approximately 880
employees are represented by 20 different local chapters of local unions.

         Management believes that its relations with both its union and
non-union employees are satisfactory.

ENVIRONMENTAL MATTERS

         The Company has implemented environmental programs and policies
designed to avoid potential liability under applicable environmental laws. The
Company has not incurred any significant environmental compliance costs and
compliance with environmental regulations has not had a material effect on the
Company's operating or financial condition. This is primarily due to the
Company's general policy of not owning or operating fuel oil terminals and of
closely monitoring its compliance with all environmental laws. In light of the
Company's general policy regarding operations and environmental compliance, the
Company does not expect environmental compliance to have a material effect on
its operations and financial condition in the future. The Company's policy for
determining the timing and amount of any environmental cost is to reflect an
expense as and when the cost becomes probable and reasonably capable of
estimation.

                               ITEM 2. PROPERTIES

         The Company provides services to its customers from 30 branches and 19
satellites, 12 of which are owned and 37 of which are leased, in 27 marketing
areas in the Northeast and Mid-Atlantic Regions of the United States.

         The Company believes its existing facilities are maintained in good
condition and are suitable and adequate for present needs. In addition, there
are numerous comparable facilities available at similar rentals in each of its
marketing areas should they be required.

                            ITEM 3. LEGAL PROCEEDINGS

         The Company is not currently involved in any legal proceeding which
could have a material adverse effect on the results of operations or the
financial condition of the Company.

           ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
                                      None.



                                       8

<PAGE>

                                     PART II


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

CLASS A COMMON STOCK

         The Company's Class A Common Stock is traded on the National
Association of Securities Dealers Inc. National Market under the symbol "HEAT".
The high and low per share price of the Class A Common Stock and dividends
declared on the Class A Common Stock for 1994 and 1995 were as follows:

                           1994                               1995
                  --------------------------         --------------------------
                    High     Low    Dividend          High      Low    Dividend
                  -------  -------  --------         ------   -------  --------
Quarter
1st               $ 9 1/4  $ 8 1/8  $.1375           $ 9 1/4  $ 6 3/4  $.1500
2nd                 8 5/8    6 3/4   .1375             8 1/4    6 1/2   .1500
3rd                 9 1/2    6 5/8   .1375             8 3/4    7       .1500
4th                 9 1/4    8 1/4   .1375             8 1/2    6 3/4   .1500


         The last sale price of the Class A Common Stock on March 1, 1996 was
$7.00 per share. As of March 1, the Company had 210 shareholders of record of
its Class A Common Stock. The Company declared a dividend of $.15 per share of
Class A Common Stock which was paid on January 2, 1996 to holders of record as
of December 15, 1995. The Company has also declared a dividend of $.15 per share
of Class A Common Stock payable on April 1, 1996 to holders of record on March
15, 1996.

CLASS B COMMON STOCK

         During July 1994, the Company exercised its right to terminate the
Special Dividends on the Class B Common Stock, effective August 31, 1994. The
Company's Articles of Incorporation provide that when the Company terminates the
Special Dividends, the holders of Class B Common Stock have the right to require
the Company to purchase their shares at $17.50 per share plus all accrued and
unpaid Special Dividends. As a result of terminating the Special Dividends, the
Company has repurchased 203,628 shares of Class B Common Stock for approximately
$3.6 million.

         As of March 1, 1996 there were 13,223 shares of Class B Common Stock
outstanding which is no longer listed on the American Stock Exchange, nor is
there an established public trading market for it.

CLASS C COMMON STOCK

         There is no established trading market for the Company's Class C Common
Stock, $.10 par value. The number of record holders of the Company's Class C
Common Stock at March 1, 1996 was 20.

         The Company declared cash dividends on its Class C Common Stock of $.55
per share in 1994 and declared cash dividends of $.60 per share in 1995. In
addition, the Company declared a dividend of $.15 per share of Class C Common
Stock which was paid on January 2, 1996 to holders of record as of December 15,
1995. The Company has declared a dividend of $.15 per share of Class C Common
Stock payable on April 1, 1996 to holders of record on March 15, 1996.

                                       9

<PAGE>


DIVIDEND POLICY

         One of the Company's primary financial objectives is to pay dividends
on its Common Stock and to increase such dividends to reflect improvements in
the Company's financial performance. Pursuant to this objective, the Company has
adopted a policy of paying annual dividends of at least 30% of NIDA. It is also
the Company's objective to have consistency in dividends. As a result, the
Company will not necessarily increase or decrease dividends based on what it
considers to be temporary increases or decreases in NIDA.

         The Company is currently paying quarterly dividends on its Class A and
Class C Common Stock at an annual rate of $.60 per share. The Company has
historically paid dividends on January 2, April 1, July 1 and October 1 of each
year.

         The Company reviews its dividend policy from time to time in light of
the Company's results of operations, financial condition, capital needs, future
projects and other facts deemed relevant by the Board of Directors. While the
board of Directors may vary the dividend policy to reduce or eliminate
dividends, the approval of the Class C Common Stockholders is required to reduce
dividends lower than the level established by a shareholders' agreement among
the Class C Common Stockholders.

         The Company may pay dividends on the Class A Common Stock and Class C
Common Stock only upon paying all current and cumulative dividends on the
Redeemable Preferred Stock. The Company has paid all current and cumulative
dividends on such stock. The Company believes that it has sufficient liquidity
to meet all dividend requirements on the Redeemable Preferred Stock and to pay
dividends on the Class A Common Stock and the Class C Common Stock in accordance
with its dividend policy as set forth above.

         Under the terms of the Company's debt instruments, the Company is
restricted to the amount of dividend distributions it can make on its capital
stock. Under the most restrictive dividend limitations, $14.9 million was
available for the payment of dividends on all classes of Common Stock at
December 31, 1995. The amount available for dividends is increased each quarter
by 50% of the cash flow, as defined, for the previous fiscal quarter.

                                       10

<PAGE>



                    ITEM 6. SELECTED FINANCIAL AND OTHER DATA

         The following table sets forth selected financial and other data of the
Company and should be read in conjunction with the more detailed financial
statements included elsewhere in this Report. The Company typically generates
net income and NIDA in the quarters ending in March and December and experiences
net losses and negative NIDA during the non-heating season quarters ending in
June and September. Although EBITDA and NIDA should not be considered
substitutes for net income (loss) as an indicator of the Company's operating
performance and NIDA is not a measure of the Company's liquidity, they are
included in the following tables as they are the bases upon which the Company
assesses its financial performance, compensates management and establishes
dividends. In addition, certain covenants in the Company's borrowing
arrangements are tied to similar measures. The ratio of EBITDA to interest
expense, net is a significant ratio in that the Company's ability to incur
additional debt under various lending arrangements is dependent upon achieving
at least a 2.1 to 1 EBITDA to interest expense-net ratio. See "Management's
Discussion and Analysis of Results of Operations and Financial Condition."


<TABLE><CAPTION>
                                                                     YEAR ENDED DECEMBER 31,        
                                                   -------------------------------------------------------------------------
                                                     1991            1992             1993             1994             1995
                                                   --------         -------          -------          -------          -----
                                                                         (in thousands, except per share data)

<S>                                                <C>             <C>              <C>              <C>              <C> 
INCOME STATEMENT DATA:
Net sales                                          $523,243        $512,430         $538,526         $546,677         $609,507
Cost of sales                                       378,772         350,941          366,809          362,981          387,825
                                                   --------        --------         --------         --------          -------
  Gross profit                                      144,471         161,489          171,717          183,696          221,682
                                                                                                
Operating expenses                                  104,435         110,165          123,280          128,310          164,929
Amortization of customer lists                       24,840          23,496           23,183           19,748           20,527
Depreciation and amortization of                                                                
 plant and equipment                                  5,550           5,534            5,933            6,469           12,374
Amortization of deferred charges                      5,185           5,363            5,548            6,177            6,142
Provision for supplemental benefit                        -           1,974              264              373            1,407
                                                   ----------      --------         --------         --------         --------
  Operating income                                    4,461          14,957           13,509           22,619           16,303
                                                                                                
Interest expense-net                                 20,728          18,622           20,508           23,766           38,792
Other income (expense)-net                              (45)           (324)            (165)             109              218
                                                   --------        --------         --------         --------         --------
  Loss before income taxes,
   equity interest in Star Gas,
   and extraordinary item                           (16,312)         (3,989)          (7,164)         (1,038)          (22,271)
Income taxes                                            250             400              400             600               500
                                                   --------        --------         --------         -------          --------
  Loss before equity interest in
  Star Gas and extraordinary item                   (16,562)         (4,389)          (7,564)         (1,638)          (22,771)

  Share of income (loss) of Star Gas                      -               -                -          (1,973)              728
                                                   --------        --------         --------         -------          --------

  Loss before extraordinary item                    (16,562)         (4,389)          (7,564)         (3,611)          (22,043)
Extraordinary item-loss on
  early extinguishment of debt                            -               -             (867)           (654)           (1,436)
                                                   --------        --------         --------         -------          --------
Net loss                                           $(16,562)       $ (4,389)        $ (8,431)        $(4,265)         $(23,479)
                                                   ========        ========         ========         =======          ========

Net loss applicable to Common Stock                $(19,855)       $ (8,842)        $(11,798)        $(7,776)         $(26,742)


Net income (loss) per common share:
  Class A Common Stock                             $  (1.64)       $   (.81)        $   (.57)        $   (.37)        $  (1.06)
  Class B Common Stock                                  .31            1.14             1.88             1.10                -
  Class C Common Stock                                (1.64)           (.81)            (.57)            (.37)           (1.06)
                                                                                                 
                                                                                                 
                                                                                                 
CASH DIVIDENDS DECLARED PER COMMON SHARE:                                                       
  Class A Common Stock                                $   -           $0.18           $0.525            $0.55            $0.60
  Class B Common Stock                                 0.31            1.14             1.88             1.10                -
  Class C Common Stock                                    -            0.18            0.525             0.55            $0.60
                                                                                                 
                                                                                                 
WEIGHTED AVERAGE NUMBER OF                                                                      
 COMMON SHARES OUTSTANDING:                                                                      
  Class A Common Stock                               10,181          12,854           18,993           19,195           22,711
  Class B Common Stock                                3,034           2,447              217              152               15
  Class C Common Stock                                2,545           2,545            2,545            2,550            2,598
</TABLE>

                                       11

<PAGE>


<TABLE><CAPTION>

                                                        1991            1992             1993             1994             1995
                                                        ----            ----             ----             ----             ----
<S>                                                <C>              <C>             <C>              <C>              <C>   
BALANCE SHEET DATA:
  Cash                                             $  2,907        $  3,860         $  4,614         $ 15,474         $ 78,285
  Working capital (deficiency)                      (12,038)         (6,744)          16,694           28,344           65,408
  Total assets                                      220,010         252,783          256,589          397,174          357,241
  Long-term debt                                    141,830         135,058          185,311          309,945          294,429
  Redeemable preferred stock
    (long-term portion)                              30,023          37,718           20,833           36,632           12,500
  Stockholders' deficiency                          (61,444)        (33,917)         (61,964)         (66,176)        (100,903)

SUMMARY CASH FLOW DATA:
Net Cash provided by (used in)
operating activities                               $ 39,616        $ 26,713         $ 36,637         $ 31,449         $ (1,707)
Net Cash provided by(used in)
  investing activities                              (16,583)        (49,143)         (34,337)         (31,672)          16,613
Net Cash provided by (used in)
financing activities                                (25,654)         23,381           (1,546)          11,083           47,905

OTHER DATA:
EBITDA(1)                                          $ 40,036        $ 51,325         $ 48,437         $ 55,386         $ 56,753
NIDA(2)                                            $ 15,744        $ 27,721         $ 24,043         $ 27,666         $ 14,650
Gallons of home heating oil
  and retail propane sold                           385,557         423,354          443,487          456,719          503,610
</TABLE>

------------------------------------
(1)     "EBITDA" (Earnings Before Interest, Taxes, Depreciation And
        Amortization) is defined as operating income before depreciation,
        amortization, non-cash charges relating to the grant of stock options to
        executives of the Company, non-cash charges associated with deferred
        compensation plans and other non-cash charges of a similar nature, if
        any. EBITDA should not be considered as an alternative to net income (as
        an indicator of operating performance) or as an alternative to cash flow
        (as a measure of liquidity or availability to service debt obligations),
        but provides additional information in that EBITDA is a component of the
        ratio of EBITDA to interest expense-net. This is a significant ratio in
        that the company's ability to incur additional debt under various
        lending arrangements is dependent upon achieving at least a 2.1 to 1
        EBITDA to interest expense, net ratio.

(2)     "NIDA" (Net Income (Loss) Before Extraordinary Item, Depreciation and
        Amortization)is defined as net income (loss) before extraordinary item,
        plus depreciation, amortization, non-cash charges relating to the grant
        of stock options to executives of the Company, non-cash charges,
        associated with deferred compensation plans and other non-cash charges
        of a similar nature, if any, less dividends accrued on preferred stock,
        excluding net income (loss) derived from investments accounted for by
        the equity method, except to the extent of any cash dividends received
        by the Company. NIDA should not be considered as an alternative to net
        income (as an indicator of operating performance) or as an alternative
        to cash flow (as a measure of liquidity or ability to service debt
        obligations) but provides additional information in that NIDA is the
        principal basis upon which the Company compensates executives and
        establishes dividends.

<PAGE>


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

OVERVIEW

         In analyzing Petro's results, one should consider a variety of factors
that are unique to the Company and its industry. These include the Company's
active acquisition program, the rapid rate of amortization of customer lists
purchased in heating oil acquisitions, the seasonal nature of the demand for
residential heating, the general ability of heating oil distributors to pass on
variations in wholesale costs to their customers and the Company's recent
history with Star Gas. The following highlights and describes certain of these
factors.

         First, the financial results of a given year do not reflect the full
impact of that year's acquisitions. Historically, most acquisitions have been
made during the non-heating season, as many sellers desire to retain winter
profits and avoid summer losses. Accordingly, the effect of acquisitions made
after the heating season are not fully reflected in the Company's sales volume
and operating and financial results until the following calendar year.

         Second, substantially all purchased intangibles have been comprised of
customer lists and covenants not to compete. Amortization of customer lists is a
non-cash expense which represents the write-off of the amount paid for customers
acquired in connection with acquisitions who later terminate their relationship
with the Company. Based on the Company's analysis of historical purchased fuel
oil customer attrition rates, customer lists are amortized 90% over a six-year
period and the balance over a 25-year period. Historically, lost purchased
accounts have been largely offset by new customers obtained through internal
marketing. Approximately 35% of the Company's customer losses result from
homeowners moving, of which approximately two-thirds have been retained by the
Company. The covenants not to compete are amortized over the lives of the
covenants, which generally range from five to seven years.

         Third, the seasonal nature of the Company's business results in the
sale by the Company of approximately 50% of its annual volume of fuel oil in the
first quarter, 30% in the fourth quarter, and 20% in the second and third
quarters combined. As a result, acquisitions made during the spring and summer
months generally have a negative effect on earnings in the calendar year in
which they are made. Most of the costs associated with an acquired distributor
are incurred evenly throughout the remainder of the year, whereas a smaller
percentage of the purchased company's annual volume and gross profit is realized
during the same period.

         Fourth, changes in total dollar sales do not necessarily affect the
Company's gross profit or net income. Since the Company historically has added a
per gallon margin onto its wholesale costs, variability in supply prices has
affected net sales, but generally has not affected net income. As a result, the
Company's margins are most meaningfully measured on a per gallon basis and not
as a percentage of sales. While fluctuations in wholesale prices have not
significantly affected demand to date, it is possible that significant wholesale
price increases over an extended period of time could have the effect of
encouraging conservation. If demand were reduced and the Company was unable to
increase its gross profit margin or reduce its operating expenses, the effect of
the decrease in volume would be to reduce net income.

                                       13

<PAGE>

         Finally, as described in detail in the "Investment In Star Gas" section
of this report, the Company transferred all of its propane assets, principally
those of Star Gas, to Star Gas Partners, L.P. and its operating subsidiaries as
part of a Master Limited Partnership transaction in December 1995. As a result
of this transaction, the Company received approximately $135 million of
proceeds, in addition to retaining a 46.5% interest in the Partnership,
including the General Partnership interest. To provide a more meaningful
analysis of the Company's results, the following 1995 to 1994 comparison
discusses the Company's results both including and excluding those propane
assets transferred.


RESULTS OF OPERATIONS AND OTHER DATA

1995 COMPARED WITH 1994
-----------------------


Volume. Total home heating oil and retail propane volume increased 10.3% to
------
503.6 million gallons in 1995, as compared to 456.7 million gallons in 1994.
This increase was primarily due to Petro's ongoing acquisition program, which
resulted in eleven home heating oil and propane acquisitions in 1995, as well as
twelve home heating oil and propane companies in 1994, including Star Gas, whose
volume is fully reflected for the first time in 1995. Excluding the impact of
the propane assets transferred in the Star Gas Conveyance to the Partnership
(the "Propane Assets") in both 1994 and 1995, volume declined 4.6%, from 439.7
million gallons to 419.6 million gallons. This decline was largely due to warmer
weather in 1995 and a change in the Company's scheduling of fuel oil deliveries,
which, while improving operating efficiency, negatively impacted the year to
year volume comparison. Heating oil volume was further impacted by the sale of
the Company's lower profitability business in New Hampshire, as well as by the
loss of certain low margin interruptible, will call and bid customers, and by
account attrition, which together offset the impact of heating oil acquisitions.

Net sales. Net sales increased 11.5% to $609.5 million for 1995, as compared to
---------
$546.7 million in 1994. This increase was due to retail and wholesale sales
associated with the Company's acquisitions. Excluding the impact of the Propane
Assets in both 1994 and 1995, net sales declined 3.5% from $527.7 million to
$509.1 million. This decrease was smaller than the decline in volume as a result
of a slight increase in home heating oil selling prices and a 3.2% rise in
service and installation revenues due to the acquisition of branches with, on
average, higher service revenues than at the Company's historic locations.

Gross profit. Gross profit increased 20.7% to $221.7 million for 1995, as
------------
compared to $183.7 million for 1994. Excluding the impact of the Propane Assets,
gross profit fell 3.6%, from $173.7 million to $167.4 million. This decrease was
also smaller than the decline in volume, largely as a result of increased
heating oil margins and a 10.7% decline in net service loss, caused both by the
growth in service and installation revenues and by the establishment of customer
service departments, which resulted in the reclassification of certain service
costs as general and administrative expenses in 1995 which were treated as
service expenses in 1994.

                                       14
<PAGE>

Selling, general and administrative expenses. Selling, general and
--------------------------------------------
administrative expenses increased 34.6% to $128.3 million for 1995, as compared
to $95.3 million for 1994, due largely to the additional expenses associated
with Star Gas, which accounted for $28.0 million, or 84.9%, of the increase.
Excluding the Propane Assets, as well as the impact of the customer service
reclassification and one-time expenses related to a consulting study discussed
in the following paragraph, selling, general and administrative expenses
increased only 1.1% in 1995, despite the Company's expansion into three new
geographic markets since 1994.

In 1995, as part of Petro's focus on operational excellence, the Company
commissioned a study by a nationally renowned consulting firm to examine and
recommend potential areas of opportunities. The results of the study suggested
that the Company should be able to increase operational efficiency, improve its
marketing efforts and provide greater levels of customer satisfaction by taking
advantage of its unique size and capabilities within the home heating oil
industry to access developments in organizational structure and technology and
communications. The Company is currently considering actions to be taken as a
result of this study.

Direct delivery expense. Direct delivery expense increased 11.0% to $36.6
-----------------------
million for 1995, as compared to $33.0 million for 1994. Excluding the impact of
the Propane Assets, direct delivery expenses decreased 8.0%, from $31.2 million
to $28.7 million, due both to the Company's ability to reduce direct delivery
expenses in response to the decline in volume and to improved performance
resulting from the change in delivery scheduling. As a result of these efforts,
the Company's per unit delivery cost fell in 1995.

Amortization of customer lists. Amortization of customer lists increased 3.9% to
------------------------------
$20.5 million for 1995, as compared to $19.7 million for 1994. This increase was
primarily due to customer list amortization associated with Star Gas. Excluding
the Propane Assets, the Company experienced a decline in customer list
amortization, from $18.9 million to $18.3 million, as a result of certain
customer lists becoming fully amortized.

Depreciation and amortization of plant and equipment. Depreciation and
----------------------------------------------------
amortization of plant and equipment increased 91.3% to $12.4 million for 1995,
as compared to $6.5 million for 1994. This increase was largely due to
depreciation associated with Star Gas. Excluding the Propane Assets, the Company
experienced a 13.2% increase in depreciation, from $5.2 million to $5.9 million,
as a result of the Company's increased size and asset base.

Amortization of deferred charges. Amortization of deferred charges remained
--------------------------------
virtually unchanged from the prior fiscal year at $6.1 million for 1995, as the
$0.9 million increase in amortization associated with Star Gas was offset by a
like amount of deferred charges associated with prior heating oil acquisitions
which became fully amortized.

                                       15
<PAGE>




Provision for supplemental benefits. Provision for supplemental benefits
-----------------------------------
increased to $1.4 million for 1995, as compared to $0.4 million for 1994. This
non-cash expense is related to the extension of the exercise date related to
certain options previously issued. This event occurred late in fiscal year 1994;
accordingly, the full impact is first reflected in fiscal year 1995.

Operating income. Operating income declined $6.3 million to $16.3 million for
----------------
1995, as compared to $22.6 million for 1994. Excluding the Propane Assets,
operating income declined from $20.1 million to $10.7 million, primarily due to
the decline in volume and the one-time cost of the consulting study.

Interest expense and interest income. Net interest expense increased by $15.0
------------------------------------
million to $38.8 million for 1995, as compared to $23.8 million for 1994, due to
increased average borrowings of $136.0 million, a substantial portion of which
was used to finance the purchase of Star Gas. The remaining increase in average
debt outstanding was primarily associated with the funding of the 22 other home
heating oil and propane acquisitions completed in 1994 and 1995, as well as with
increasing Petro's working capital to fund future expansion. While the Company
was successful in refinancing $12.8 million of its debt in April 1995 at a lower
borrowing rate, the average borrowing rate for the Company increased by 0.29%
from 1994 to 1995 as a result of the Company's extension of its average maturity
on its debt outstanding.

As a result of the Star Gas Conveyance in December 1995, Petro has applied
approximately $72 million of its proceeds from the Master Limited Partnership
transaction to the retirement of long-term debt in December 1995 and February
1996, with the remainder of the approximately $135 million in proceeds used to
increase working capital to fund the Company's future growth.

Other income. Other income of $0.2 million for 1995 primarily represents the net
------------
gain recorded on the sale of certain customer lists and fixed assets, including
the sale of the New Hampshire operations.

Income taxes. Income taxes were $0.5 million for 1995, as compared to $0.6
------------
million for 1994, and represent certain state taxes. The Company had losses for
Federal Income Tax purposes in both 1994 and 1995. As of December 31, 1995, net
operating loss carryforwards amounted to $76.2 million.

Equity in earnings of Star Gas. For 1994, the Company recorded equity in losses
------------------------------
of Star Gas of $2.0 million. This amount represented the share of Star Gas' loss
associated with the Company's minority interest prior to its purchase of the
remainder of Star Gas on December 7, 1994. From that date until December 19,
1995, the Company owned 100% of Star Gas; accordingly, Star's results were
consolidated with the Company's, and the Company showed no such equity in
losses. Subsequent to the December 19, 1995 conversion of Star Gas into a Master
Limited Partnership, the Company owned 46.5% of Star Gas, and Star Gas' results
were again accounted for under the equity method of accounting, resulting in
equity in earnings of $0.7 million in 1995.


                                       16
<PAGE>

Extraordinary item - loss on early extinguishment of debt. In April 1995, the
---------------------------------------------------------
Company recorded an extraordinary charge of $1.4 million in connection with the
refinancing of $12.8 million of debt due in March 2000. This refinancing yielded
a reduction in the borrowing rate on that debt of over 3.4% in 1995. In the
comparable period in 1994, the Company also recorded an extraordinary charge of
$0.7 million, when it refinanced $50.0 million in long-term notes that were
scheduled to mature in June 1994.

Net loss. Net loss increased from $4.3 million for 1994 to $23.5 million for
--------
1995. This was primarily due to the decline in home heating oil volume,
increased interest expense associated with the Company's acquisition of Star
Gas, and an increase in non-cash depreciation and amortization expense at Star
Gas.

EBITDA.* EBITDA increased 2.5%, or $1.4 million, to $56.8 million for 1995, as
-------
compared to $55.4 million for 1994, due to an increase in EBITDA of $11.6
million at Star Gas, largely offset by the decline in heating oil volume and
one-time expenses related to the consulting study.

NIDA.** NIDA declined from $27.7 million for 1994 to $14.7 million for 1995.
-----
This decline was primarily due to the volume related home heating oil EBITDA
decline and increased interest expense associated with the Company's
acquisitions, primarily Star Gas.





-----------------------------------------
* EBITDA is defined as operating income before depreciation, amortization,
non-cash charges relating to the grant of stock options to executives of the
Company, non-cash charges associated with deferred compensation plans and other
non-cash charges of a similar nature, if any.

** NIDA is defined as net income (loss) before extraordinary items, plus
depreciation, amortization, non-cash charges relating to the grant of stock
options to executives of the Company, non-cash charges associated with deferred
compensation plans and other non-cash charges of a similar nature, if any, less
dividends accrued on preferred stock, excluding net income (loss) derived from
investments accounted for by the equity method, except to the extent of any cash
dividends received by the Company.

                                       17
<PAGE>



1994 COMPARED TO 1993
---------------------


Volume. In 1994, retail volume of home heating oil and propane increased to
------
456.7 million gallons, 3.0% greater than the 443.5 million gallons delivered in
1993, due to the Star Gas acquisition (9.6 million gallons) and the impact of
the nine home heating oil acquisitions completed in 1993, whose annual volume
was fully reflected for the first time in 1994, and the eleven home heating oil
and propane acquisitions completed in 1994. Partially offsetting the positive
impact of the acquisitions was 1.5% warmer weather experienced in the heating
oil division, and attrition in the Company's home heating oil customer base. In
1994, the Company also sold 39.4 million gallons of other petroleum products and
wholesale propane, 8.2% greater than the 36.4 million gallons sold in 1993. This
increase of 3.0 million gallons was primarily due to the wholesale propane
volume associated with the Star Gas acquisition.

Net sales. Net sales in 1994 increased to $546.7 million from $538.5 million in
---------
1993. This $8.2 million increase was due to the Star Gas acquisition, which
increased sales by $11.1 million, offset by a decline of $2.9 million in the
heating oil division. Sales were lower in the heating oil division as volume
growth was more than offset by lower selling prices, reflecting a lower
wholesale cost of product.

Gross profit. Gross profit increased 7.0% from $171.7 million in 1993 to $183.7
------------
million for 1994 due to both the $5.8 million of gross profit realized by Star
Gas in December 1994 and a $6.2 million increase in gross profit in the heating
oil division. The increase in the heating oil division gross profit from $171.7
million to $177.9 million was attributable to an increase in volume and to
improved gross profit margins from 38.7(cent) per gallon to 39.8(cent) per
gallon. The increase reflects an increase in heating oil gross profit margins on
the sale of home heating oil, offset in part by an increase in the net cost of
providing heating equipment repair and maintenance services and the additional
costs associated with the severe winter weather experienced during the first
quarter of 1994.

Selling, general and administrative expenses. Selling, general and
--------------------------------------------
administrative expenses increased 2.1% to $95.3 million in 1994, from $93.4
million in 1993. While expenses declined by $0.4 million in the heating oil
division despite larger volume, this decline was offset by $2.3 million of
expenses at Star Gas for December 1994. On a per gallon basis, the expenses in
the heating oil division declined by 1.2% due primarily to a $3.0 million
reduction in marketing expenses. The marketing expense decline resulted from the
Company's more disciplined customer service oriented marketing strategy. This
decrease in marketing expenses was offset by increases in insurance and
operating expenses attributable to the first quarter severe winter weather
conditions.

Direct delivery expense. Direct delivery expense increased $3.1 million, from
-----------------------
$29.9 million in 1993 to $33.0 million in 1994. This increase was due to the
additional costs associated with larger volume and temporary delivery
inefficiencies experienced during the first quarter of 1994 as a result of
severe winter weather conditions, as well as to delivery costs of $1.1 million
associated with the Star Gas volume.

                                       18

<PAGE>

Amortization and depreciation. Amortization of customer lists and deferred
-----------------------------
charges decreased 9.8%, or $2.8 million, to $25.9 million. These non-cash
expenses declined as certain customer lists and deferred charges became fully
amortized. Depreciation and amortization of plant and equipment increased $0.5
million to $6.5 million due primarily to the Star Gas acquisition.

Operating income. Operating income increased to $22.6 million for 1994 from
----------------
$13.5 million in 1993. This significant improvement was due to volume growth and
to improved home heating oil margins, which were partially offset by first
quarter 1994 weather related increases in service, delivery and operating
expenses. The decline in depreciation and amortization expense also contributed
to the increase in operating income.

Net interest expense. Net interest expense increased $3.3 million to $23.8
--------------------
million for 1994, due primarily to an increase of $26.1 million in total average
borrowings from $190.9 million to $217.0 million, offset by a reduction in the
average borrowing rate from 11.0% to 10.8%. Also contributing to the increase
was $0.6 million of interest expense of Star Gas.

Income taxes. Income taxes were $0.6 million in 1994, as compared to $0.4
------------
million in 1993 and represent certain state income taxes applicable to
profitable subsidiaries that are not included in consolidated state returns. The
Company had losses for Federal Income Tax purposes in each of these periods. The
Company has available $55.3 million of net operating loss carryforwards at
December 31, 1994.

Equity in losses of Star Gas Corporation. Based on Petro's ownership percentage
----------------------------------------
of Star Gas prior to December 7, 1994, $2.0 million was recorded as a loss under
the equity method of accounting. In December 1994, the Company exercised certain
options to acquire the remaining common equity of Star Gas, and its results are
included in the consolidated financial statements of the Company.

Extraordinary item - loss on early extinguishment of debt. The extraordinary
---------------------------------------------------------
loss of $0.7 million for 1994 represents the cash premium paid in connection
with the February 1994 refinancing of $50.0 million in long term notes which
were scheduled to mature in June 1994. In 1993 the Company recorded an
extraordinary charge of $0.9 million representing a cash premium of $0.4 million
and the write-off of $0.5 million in debt discount and related deferred charges
when $25.0 million of subordinated debt scheduled to mature in 1993 and 1995 was
refinanced.

Net loss. The net loss decreased from $8.4 million in 1993 to $4.3 million in
--------
1994, due to the $9.1 million increase in operating income, offset by an
increase in net interest expense of $3.3 million and the $2.0 million of equity
in losses of Star Gas.

EBITDA. Despite 1994 being approximately 1.5% warmer than 1993, EBITDA increased
------
14.3% to $55.4 million in 1994 from $48.4 million in 1993. This $6.9 million
improvement was due to volume expansion associated with the Company's
acquisition program, an increase in home heating oil gross profit margins and
operating expense control.


                                       19

<PAGE>

LIQUIDITY AND FINANCIAL CONDITION

         One of the Company's primary financial strategies has been to finance
its growth through a combination of internally generated capital, the sale of
common stock, the issuance of redeemable preferred stock and debt. This strategy
has been pursued by financing acquisitions and other asset requirements made in
the last five years in the following manner: 43.3% with internally generated
cash and funds from common stock offerings; 19.2% with redeemable preferred
stock and long-term debt; and 37.5% from the net proceeds of the Star Gas First
Mortgage Notes and the Star Gas MLP offering.

         In February 1995, the Company completed public offerings of $125.0
million of its 12 1/4% Subordinated Debentures due February 1, 2005 and
approximately 2.9 million shares of Class A Common Stock. The net proceeds of
the two offerings were approximately $139.0 million. During 1995, the proceeds
were used to purchase $85.2 million of long term debt and preferred stock of
Star Gas, to retire approximately $13.6 million (1.5 million shares) of Class A
Common Stock issued in the Star transaction, and to repay $12.8 million of
long-term debt due in March 2000 along with a premium of approximately $1.4
million to retire such portion of debt. The balance of the net proceeds,
approximately $26.0 million, was made available for general corporate purposes.

         In December 1995, the Company received net proceeds from the transfer
of its propane assets to the Partnership of $134.7 million, $83.7 million from
Star Gas Corporation's First Mortgage Notes, and $51.0 million from the Star Gas
MLP offering. The Company used $24.0 million of these proceeds to repay
long-term debt and reserved $6.0 million to guarantee the Partnership's minimum
quarterly distribution, leaving a balance of approximately $104.7 million.
Approximately $48.6 million of this balance was used in February 1996 to pay
$43.8 million of the $125.0 million 12 1/4/% Subordinated Debentures due 2005 at
an eleven percent premium.

         Net cash used by operating activities of $1.7 million, along with the
$26.0 million remaining from the $125.0 million 12 1/4% Subordinated Debenture
and 2.9 million Class A Common Stock offerings, combined with the $104.7 million
remaining from the Star Gas MLP transaction amounted to $129.0 million for the
year ended December 31, 1995. These funds were utilized in investing activities
for acquisitions and the purchase of fixed assets totaling $34.4 million, in
financing activities to pay dividends of $18.2 million, to repay working capital
borrowings of $5.1 million, to purchase Redeemable Preferred Stock of $4.2
million, to repurchase common stock of $0.4 million, to pay consents and other
fees in connection with the Star MLP offering of $2.4 million, and for other
financing activities of $1.5 million. In addition, the Company financed a
portion of its 1995 acquisitions with notes payable in the aggregate amount of
$8.0 million. As a result of the above activity, the Company's cash balance
increased by $62.8 million at December 31, 1995.

         The Company currently has available a $60 million working capital
revolving credit facility. At December 31, 1995 there were no outstanding
working capital borrowings, and the Company had $65.4 million of working
capital.


                                       20
<PAGE>



         For 1996, the Company anticipates paying dividends on its Common Stock
before dividend reinvestment of approximately $15.3 million, redeeming $4.2
million of Redeemable Preferred Stock and paying $2.4 million in preferred
dividends. Based on the Company's current working capital position, bank credit
availability and expected net cash provided by operating activities, the Company
expects to be able to meet all of the above mentioned obligations in 1996.

         Currently, the Company has no material commitments for capital
expenditures.



               ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                   See Index to Financial Statements, Page F-1


            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 information appearing in the Proxy Statement under the caption
ELECTION OF DIRECTORS and under the caption EXECUTIVE OFFICERS, is incorporated
herein by this reference.


                        ITEM 11. EXECUTIVE COMPENSATION.

         The information appearing in the Proxy Statement under the caption
EXECUTIVE COMPENSATION, is incorporated herein by this reference.


    ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

         The information appearing in the Proxy Statement under the caption
ELECTION OF DIRECTORS -- Ownership of Equity Securities in the Company, is
incorporated herein by this reference.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         The information appearing in the Proxy Statement under the caption
ELECTION OF DIRECTORS -- Certain Transactions, is incorporated herein by this
reference.


                                       21

<PAGE>

                                    PART IV


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

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

    1. The following consolidated financial statements are included in Part II,
       Item 8:

        Consolidated Financial Statements of Petroleum Heat and Power Co., Inc. 
        and Subsidiaries:

         Independent Auditors' Reports

         Consolidated Balance Sheets, December 31, 1994 and 1995

         Consolidated Statements of Operations, years ended
         December 31, 1993, 1994 and 1995

         Consolidated Statements of Changes in Stockholders' Equity
         (Deficiency) years ended December 31, 1993, 1994 and 1995

         Consolidated Statements of Cash Flows, years ended December
                     31, 1993, 1994 and 1995

         Notes to Consolidated Financial Statements

    2. The following financial schedule is submitted herewith:

       Schedule II - Valuation and Qualifying Accounts Years Ended
         December 31, 1993, 1994 and 1995

        All other schedules are omitted because they are not
        applicable or the required information is shown in the
        consolidated financial statements or notes thereto.


    3. (a) Exhibits

       The Exhibits which are listed on the Exhibit Index attached hereto.

    4. Reports on Form 8-K

       The Company filed a Form 8-K on December 20, 1995 to report the Star Gas
       Conveyance including Proforma Financial Statements for the transaction.


                                       22
<PAGE>


                                                LIST OF EXHIBITS
<TABLE>
<CAPTION>

EXHIBIT 
NO.      DESCRIPTION OF EXHIBIT 
-------  ----------------------

<S>     <C>
3.1 --   Restated and Amended Articles of Incorporation, as amended, and 
         Articles of Amendment thereto.(2)

3.2 --   Restated By-Laws of the Registrant.(2)

4.1 --   Indenture,  dated as of April 1, 1993,  between  the  Company  and  Chemical  Bank,  as trustee,
         including Form of Notes.(1)

4.2 --   Form of  Indenture,  dated as of October 1, 1985 between the Company and  Manufacturers  Hanover
         Trust Company, as trustee, including Form of Notes.(3)

4.3 --   Restated and Amended Articles of Incorporation and Articles of Amendment thereto.(3)

4.4 --   Certificate  of  Designation  creating a series of  preferred  stock  designated  as  Cumulative
         Redeemable Exchangeable 1991 Preferred Stock and Certificate of Amendment relating thereto.(6)

4.5 --   Certificate  of  Designation  creating a series of  preferred  stock  designated  as  Cumulative
         Redeemable 1991 Preferred Stock.(3)

4.6 --   Form of  Indenture  between  the Company  and  Chemical  Bank,  as  trustee,  including  Form of
         Debentures.(8)

4.7 --   Certificate  of  Designation  creating a series of  Preferred  Stock  designated  as  Cumulative
         Redeemable Exchangeable 1993 Preferred stock.(8)

9.1 --   Shareholders'  Agreement  dated  as  of  July  1992,  among  the  Company  and  certain  of  its
         stockholders.(2)

10.1 --  Amended and Restated Credit Agreement dated as of December 31, 1992 among the Company,  Maxwhale
         Corp., certain banks party thereto and Chemical Bank. (1)

10.2 --  Pension Plan, as amended, of Petroleum Heat and Power Co., Inc. (2)

10.3 --  Savings Plan, as amended of Petroleum Heat and Power Co., Inc.(2)

10.4 --  Supplemental Executive Retirement Plan of Petroleum Heat and Power Co., Inc.(2)

10.5 --  Lease  dated July 15, 1981 with  respect to offices  and garage  located at 477 West John Street
         and 5 Alpha Plaza, Hicksville, New York.(4)

10.6 --  Lease dated February 15, 1982,(5) First Amendment dated February 14, 1986, and Second  Amendment
         dated July 1, 1989, with respect to offices,  garage and terminal located at 818 Michigan  Avenue,  N.E.,
         Washington, D.C.(2)

10.7 --  Lease  dated  December  1, 1985 with  respect  to office and garage  located at  3600-3620  19th
         Avenue, Astoria, New York.(3)

10.8 --  Lease dated November 1, 1985 with respect to office and garage located at 522 Grand Blvd.,
         Westbury, New York.(5)

10.9 --  Lease dated June 5, 1986 with respect to office and garage located at 2541 Richmond  Terrace Co.,  Staten
         Island, New York.(5)

10.10 -- Lease  dated  July 31,  1986 with  respect  to office  and  garage  located  at 71 Day  Street,  Norwalk,
         Connecticut.(5)

10.11 -- Lease dated July 9, 1984 with respect to office located at 1245 Westfield Avenue, Clark, New Jersey.(5)

10.12 -- Lease dated October 26, 1990 with respect to office and garage located at 1 Coffey Street,  Brooklyn, New
         York.(2)

10.13 -- Lease  dated  February  6, 1990 with  respect to office and  garage  located at 62 Oakland  Avenue and 64
         Oakland Avenue, East Hartford, Connecticut.(2)

10.14 -- Lease dated July 29, 1988 and Addendum to lease dated  August 1, 1988 with respect to office,  garage and
         terminal located at 224 North Main Street, Southampton, New York.(2)

10.15 -- Lease dated April 1, 1988 with  respect to office and garage  located at 171 Ames Court,  Plainview,  New
         York.(2)
</TABLE>

                                       23

<PAGE>

<TABLE>

<S>      <C>
10.16 -- Lease  dated  August 12,  1988 with  respect to office and  garage  located at 326 South  Second  Street,
         Emmanus, Pennsylvania.(2)

10.17 -- Lease dated July 15,  1990,  Addendum  to lease  dated July 27,  1990 and Second  Addendum to lease dated
         November  30,  1990,  with  respect  to  office  and  garage  located  at 212 Elm  Street,  North  Haven,
         Connecticut.(2)

10.18 -- Lease dated August 14, 1989 with  respect to office and garage  located at foot of South  Street,  Oyster
         Bay, New York.(2)

10.19 -- Lease and Addendum to lease dated  September  26, 1990 with  respect to office and garage  located at 930
         Park Avenue, Lakewood, New Jersey.(2)

10.20 -- Lease dated December 1, 1990 with respect to garage located at 10 Coffey Street, Brooklyn, New York.(2)

10.21 -- Lease dated May 9, 1991 with  respect to office and garage  located at 260 Route 10 East,  Whippany,  New
         Jersey.(2)

10.22 -- Lease  dated  June 1, 1987 with  respect  to garage  located  at 817  Pennsylvania  Avenue,  Linden,  New
         Jersey.(2)

10.23 -- Lease  dated  June 1, 1989 with  respect to office and  garage  located  at 2 Selleck  Street,  Stamford,
         Connecticut.(2)

10.24 -- Lease  dated  April 28,  1992 with  respect to office and garage  located  at  8087-8107  Parston  Drive,
         Forestville, Maryland.(1)

10.25 -- Option  dated  October 18, 1984  granted to Irik P. Sevin to purchase  64,000  shares of common  stock of
         Petroleum Heat and Power Co., Inc.(3)

10.26 -- Agreement  dated  October 22, 1986  relating to purchase of 64,000 shares of Class A Common Stock by Irik
         P. Sevin.(5)

10.27 -- Agreement dated December 2, 1986 relating to stock options granted to Irik P. Sevin.(5)

10.28 -- Agreements  dated December 28, 1987 and March 6, 1989 relating to stock options  granted to Irik P. Sevin
         and Malvin P. Sevin.(2)

10.29 -- Form of Note dated  December 31, 1992, in the amount of $1,499,378,  due December 31, 1993,  from Irik P.
         Sevin to the Company.(1)

10.30 -- Subordinated  Note  Agreement  relating to $60 million  Subordinated  Notes due October 1, 1998 issued to
         John Hancock Mutual Life Insurance Company and other Investors.(2)

10.31 -- Note Agreement,  dated as of January 15, 1991,  relating to $12.5 million  Subordinated Notes due January
         15, 2001, between the Company and Connecticut General Life Insurance Company.(2)

10.32 -- Purchase  Agreement,  dated as of August 1, 1989,  between  the  Company  and John  Hancock  Mutual  Life
         Insurance  Company and The Northwestern  Mutual Life Insurance  Company,  relating to the purchase of the
         1989 Preferred Stock.(2)

10.33 -- Agreement dated as of November 1, 1992 relating to stock options granted to George Leibowitz.(1)

10.34 -- Letter Agreement dated March 15, 1993 relating to the Credit Agreement.(1)

10.35 -- Lease dated June 17, 1993 with respect to office facilities  located at 2187 Atlantic Street in Stamford,
         Connecticut. (8)

10.36 -- Form of Note dated  December 31, 1993, in the amount of $1,559,827,  due December 31, 1994,  from Irik P.
         Sevin to the Company.(8)

10.37 -- Purchase Agreement,  dated as of December 21, 1993, among Star Gas Holdings,  Inc., First Reserve Secured
         Energy Assets Fund, L.P.,  American Gas & Oil Investors,  AmGo II, AmGo III, FRC Star Gas, Inc., Star Gas
         and the Company.(9)

10.38 -- Option from Star Gas to the Company, dated as of December 21, 1993.(9)

10.39 -- Shareholder  Put/Call  Agreement,  dated as of December 21, 1993, among the Company,  the Other Investors
         and Prudential.(9)

10.40 -- Shareholders'  Agreement,  dated as of December 21,  1993,  among the Company,  the Other  Investors  and
         Prudential.(9)
</TABLE>

                                       24
<PAGE>

<TABLE>
<S>      <C>
10.41 -- Management Services Agreement, dated as of December 21, 1993, between the Company and Star Gas.(9)

10.42 -- First Amendment to the Company's 10_% Subordinated Notes Indenture dated as of January 12, 1994.(8)

10.43 -- Form of Third Amendment to the Connecticut General Note Agreement.(8)

10.44 -- Form of Second Amendment to the Hancock Note Agreement.(8)

10.45 -- Form of First Amendment to the Hancock/Northwestern Purchase Agreement.(8)
10.46 -- Form of Fourth Amendment dated January 21, 1994 to the Second Amended and Restated Credit Agreement.(8)

10.47 -- Employment Agreement dated July 21, 1994 with Thomas Isola.(10)

10.48 -- Agreement entered into as of the 7th day of December,  1994 among the Company,  Pru Supply,  Inc. and the
         Prudential Insurance Company of America.(2)

10.49 -- Agreement dated April 4, 1994 relating to stock options granted to Irik P. Sevin.(11)

10.50 -- Note dated  December 31, 1994,  in the amount of  $1,640,060  due December 31, 1995 from Irik P. Sevin to
         the Company.(11)

10.51 -- Employment Agreement dated June 2, 1994 with Alex Szabo (12)

10.52 -- Agreement dated December 31, 1995, in the amount of $1,751,468 due December 31, 1999
         from Irik P. Sevin to the Company (13)

11.0  -- Computation of Per Share Earnings.(13)

21.0  -- Subsidiaries of Registrant.(13)

23.0  -- Consent of KPMG Peat Marwick LLP (13)

27.0  -- Financial Date Schedule (13)



 (1)   Filed as Exhibits to Registration Statement on Form S-2, File No. 33-58034.

 (2)   Filed as Exhibits to Registration Statement on Form S-1, File No. 33-48051, and incorporated herein by reference.

 (3)   Filed as Exhibits to Registration Statement on Form S-1, File No. 2-99794, and incorporated herein by reference.

 (4)   Filed as Exhibits to Registration Statement on Form S-1, File No. 2-88526, and incorporated herein by reference.

 (5)   Filed as Exhibits to Registration Statement on Form S-1, File No. 33-9088, and incorporated herein by reference.

 (6)   Filed as Exhibits to the Company's Annual Report on Form 10-K for the year ended December 31, 1991, File No.
       2-88526, and incorporated herein by reference.

 (7)   Filed as Exhibits to the Company's Annual Report on Form 10-K for the year ended December 31, 1988, File No.
       2-88526, and incorporated herein by reference.

 (8)   Filed as Exhibits to the Registration Statement on Form S-2, File No. 33-72354, and incorporated herein by
       reference.

 (9)   Filed as Exhibits to the Company's Periodic Report on Form 8-K filed on January 4, 1994, File No. 2-88526 and
       incorporated herein by reference.

(10)   Filed as an Exhibit to the Company's Periodic Report on Form 10-Q for the
       quarter ended September 1994 and incorporated herein by reference.

(11)   Filed as Exhibits to the Registration Statement on Form S-2, File
       No.33-57059, and incorporated herein by reference.

(12)   Filed as an Exhibit to the Company's Annual Report on Form 10-K for the
       year ended December 31, 1994, File No. 2- 88526, and incorporated herein by
       reference.

(13)   Filed herein.
</TABLE>

                                       25
<PAGE>


              PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                        AND FINANCIAL STATEMENT SCHEDULE





CONSOLIDATED FINANCIAL STATEMENTS OF PETROLEUM HEAT AND POWER CO.,
      INC. AND SUBSIDIARIES

        INDEPENDENT AUDITORS' REPORT                                  F-2

        CONSOLIDATED BALANCE SHEETS, DECEMBER 31, 1994
             AND 1995                                                 F-3

        CONSOLIDATED STATEMENTS OF OPERATIONS, YEARS
             ENDED DECEMBER 31, 1993, 1994 AND 1995                   F-4

        CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
             EQUITY (DEFICIENCY), YEARS ENDED DECEMBER 31, 1993,
             1994 AND 1995                                            F-5

        CONSOLIDATED STATEMENTS OF CASH FLOWS, YEARS ENDED
             DECEMBER 31, 1993, 1994 AND 1995                         F-6

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                    F-8

SCHEDULE FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995:

        II - VALUATION AND QUALIFYING ACCOUNTS                        F-29


        ALL OTHER SCHEDULES ARE OMITTED BECAUSE THEY ARE NOT APPLICABLE OR THE
        REQUIRED INFORMATION IS SHOWN IN THE CONSOLIDATED FINANCIAL STATEMENTS
        OR NOTES THERETO.




                                       F-1

<PAGE>



                          INDEPENDENT AUDITORS' REPORT




The Stockholders and Board of Directors of 
PETROLEUM HEAT AND POWER CO., INC.:



           We have audited the accompanying consolidated balance sheets of
Petroleum Heat and Power Co., Inc. and subsidiaries as of December 31, 1994 and
1995, and the related consolidated statements of operations, changes in
stockholders' equity (deficiency) and cash flows for each of the years in the
three-year period ended December 31, 1995. In connection with our audit of the
consolidated financial statements we also have audited the financial statement
schedule as listed in the accompanying index. These consolidated financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule 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
Petroleum Heat and Power Co., Inc. and subsidiaries as of December 31, 1994 and
1995, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1995 in conformity with
generally accepted accounting principles. Also in our opinion, the related
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.



                                              KPMG PEAT MARWICK LLP


Stamford, Connecticut
March 1, 1996









                                       F-2


<PAGE>


              PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
(In thousands)
                                                              DECEMBER 31,
                                                         --------------------
ASSETS                                                      1994       1995
                                                         ---------- ---------

Current assets:
  Cash and cash equivalents                              $  15,474  $  78,285
  Restricted cash                                             -         6,000
  Accounts receivable (net of allowance of $1,769 and       87,246     95,361
$969)
  Inventories                                               21,746     20,413
  Prepaid expenses                                           7,382      6,115
  Notes receivable and other current assets                  1,279      1,617
                                                         ---------  ---------
     Total current assets                                  133,127    207,791
                                                         ---------  ---------

Property, plant and equipment - net                        127,174     30,263
                                                         ---------  ---------

Intangible assets (net of accumulated amortization
 of $243,116 and $264,456)
   Customer lists                                          102,636     76,419
   Deferred charges and pension costs                       32,692     27,296
                                                         ---------  ---------
                                                           135,328    103,715

Investment in and advances to the Star Gas Partnership         -       14,648
                                                         ---------- ---------
Other assets                                                 1,545        824
                                                         ---------  ---------
                                                         $ 397,174  $ 357,241
                                                         =========  =========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
  Current debt                                           $   5,617  $  47,001
  Current maturities of cumulative redeemable
    preferred stock                                          4,167      4,167
  Accounts payable                                          19,786     22,824
  Customer credit balances                                  26,903     19,610
  Unearned service contract revenue                         14,334     15,535
  Accrued expenses and other liabilities                    33,975     33,246
                                                         ---------  ---------
     Total current liabilities                             104,782    142,383
                                                         ---------  ---------

Supplemental benefits and other liabilities                  2,961      1,658
                                                         ---------  ---------
Pension plan obligation                                      9,029      7,174
                                                         ---------  ---------
Notes payable and other long-term debt                      99,681     17,779
                                                         ---------  ---------
Senior notes payable                                        42,632     35,200
                                                         ---------  ---------
Subordinated notes payable                                 167,632    241,450
                                                         ---------  ---------

Star Gas preferred stock                                    19,966          -

Cumulative redeemable exchangeable preferred stock          16,667     12,500
                                                         ---------  ---------

Common stock redeemable at option of stockholder             1,280      1,280
                                                         ---------- ---------
Note receivable from stockholder                            (1,280)    (1,280)
                                                         ---------  ---------

Stockholders' equity (deficiency):

Class A common stock-par value $.10 per share; 40,000 
shares authorized, 21,340 and 22,653 shares                  2,134      2,266
outstanding
Class B common stock-par value $.10 per share; 6,500
shares authorized, 21 and 14 shares outstanding                  2          1
Class C common stock-par value $.10 per share; 5,000
shares authorized, 2,558 shares outstanding                    256        256

Additional paid-in capital                                  71,036     76,418
Deficit                                                   (132,953)  (174,972)
Minimum pension liability adjustment                        (6,651)    (4,872)
                                                         ---------  ---------
     Total stockholders' equity (deficiency)               (66,176)  (100,903)

                                                         $ 397,174  $ 357,241
                                                         =========  =========


         See accompanying notes to consolidated financial statements.

                                       F-3


<PAGE>


              PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

                                           Years Ended December 31,
                                      ---------------------------------
                                        1993          1994        1995
                                      ---------     ---------   -------

   Net sales                          $538,526      $546,677    $609,507
   Cost of sales                       366,809       362,981     387,825
                                      --------      --------    --------
    Gross profit                       171,717       183,696     221,682

   Selling, general and
   administrative
    expenses                            93,379        95,314     128,295
   Direct delivery expense              29,902        32,995      36,634
   Amortization of customer lists       23,183        19,749      20,527
   Depreciation of plant and             5,933         6,469      12,374
   equipment
   Amortization of deferred charges      5,548         6,177       6,142
   Provision for supplemental              263           373       1,407
                                       -------      --------    --------
   benefits

     Operating income                   13,509        22,619      16,303

   Other income (expense):
     Interest expense                  (22,156)      (25,282)    (41,084)
     Interest income                     1,647         1,516       2,292
     Other                                (164)          109         218
                                      --------       -------    --------

     Loss before income taxes, equity
       interest in Star Gas and
       extraordinary item               (7,164)       (1,038)    (22,271)
   Income taxes                            400           600         500
                                      --------      --------    --------
     Loss before equity interest in
       Star Gas and extraordinary       (7,564)       (1,638)    (22,771)
                                      --------      --------    --------
   item

   Share of income (loss) of Star Gas        -        (1,973)        728
                                      --------      --------    --------
     Loss before extraordinary item     (7,564)       (3,611)    (22,043)
                                      --------      --------    --------
   Extraordinary item-loss on early
      extinguishment of debt              (867)         (654)     (1,436)
                                      --------      --------    --------
     Net loss                         $ (8,431)     $ (4,265)   $(23,479)
                                      ========      ========    ========

   Net loss applicable to common      $(11,798)     $ (7,776)   $(26,742)
   stock

   Income (loss) before extraordinary 
      item per common share:

      Class A Common Stock            $  (.53)      $  (.34)    $  (1.00)
      Class B Common Stock               1.88          1.10            -
      Class C Common Stock               (.53)         (.34)       (1.00)

   Extraordinary (loss) per common
      share:

      Class A Common Stock            $  (.04)      $  (.03)    $   (.06)
      Class B Common Stock                 -              -           -
      Class C Common Stock               (.04)         (.03)        (.06)

   Net income (loss) per common share:
      Class A Common Stock            $  (.57)      $  (.37)    $  (1.06)
      Class B Common Stock               1.88          1.10           -
      Class C Common Stock               (.57)         (.37)       (1.06)

   Weighted average number of common 
      shares outstanding:

      Class A Common Stock              18,993        19,195      22,711
      Class B Common Stock                 217           152          15
      Class C Common Stock               2,545         2,550       2,598







          See accompanying notes to consolidated financial statements.

                                       F-4


<PAGE>

                   PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES
         Consolidated Statements of Changes in Stockholders' Equity (Deficiency)

                       Years Ended December 31, 1993, 1994 and 1995
<TABLE><CAPTION>
                                                          Common Stock                                            
                                           ------------------------------------------                              
                                             Class A         Class B         Class C         Additional           Minimum 
                                           ------------------------------------------                             Pension
                                            No. of          No. of          No. of          Paid-In             Liability
(In thousands)                              Shares  Amount  Shares  Amount  Shares  Amount  Capital   Deficit   Adjustment    Total
                                            ------  ------  ------  ------  ------  ------  -------   --------  ----------    -----
<S>                                         <C>     <C>       <C>      <C>   <C>    <C>    <C>      <C>        <C>         <C>
Balance at December 31, 1992                18,831  $1,883     217     $22   2,506  $251   $53,202  ($89,274)        $0    ($33,916)

Net Loss                                                                                              (8,431)                (8,431)
Cash dividends declared and paid (Note 6 and 7)                                                      (11,973)               (11,973)
Cash dividends payable (Note 6 and 7)                                                                 (3,064)                (3,064)
Accretion of redeemable preferred stock                                                        (46)                             (46)
Minimum pension liability adjustment                                                                             (4,534)     (4,534)
                                            ----------------------------------------------------------------------------------------
Balance at December 31, 1993                18,831   1,883     217      22   2,506   251    53,156  (112,742)    (4,534)    (61,964)

Net loss                                                                                              (4,265)                (4,265)
Cash dividends declared and paid (Note 6 and 7)                                                      (12,463)               (12,463)
Cash dividends payable (Note 6 and 7)                                                                 (3,483)                (3,483)
Repurchase of Class B Common Stock                            (196)    (20)                 (3,414)                          (3,434)
Repurchase of Class A Common Stock            (190)    (19)                                 (1,694)                          (1,713)
Class A Common Stock issued                  2,489     249                                  21,847                           22,096
Class A Stock Options exercised                210      21                                     838                              859
Class C Stock Options exercised                                                 52     5       210                              215
Minimum pension liability adjustment                                                                             (2,117)     (2,117)
Stock option compensation                                                                       93                               93
                                            ----------------------------------------------------------------------------------------
Balance at December 31, 1994                21,340   2,134      21       2   2,558   256    71,036  (132,953)    (6,651)    (66,176)

Net loss                                                                                             (23,479)               (23,479)
Cash dividends declared and paid (Note 6 and 7)                                                      (14,718)               (14,718)
Cash dividends payable (Note 6 and 7)                                                                 (3,822)                (3,822)
Repurchase of Class B Common Stock                              (7)     (1)                   (118)                            (119)
Repurchase of Class A Common Stock          (1,580)   (158)                                (13,873)                         (14,031)
Class A Common Stock issued                  2,893     290                                  18,366                           18,656
Stock option compensation                                                                    1,065                            1,065
Minimum pension liability adjustment                                                                              1,779       1,779
Other                                                                                          (58)                             (58)
                                            ----------------------------------------------------------------------------------------
Balance at December 31, 1995                22,653  $2,266      14      $1   2,558  $256   $76,418 ($174,972)   ($4,872)  ($100,903)
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to consolidated financial statements.

                                        F-5

<PAGE>


              PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS


(In thousands)                                   Years Ended December 31,
                                           -----------------------------------
                                             1993          1994          1995
                                           ----------    ----------    -------

CASH FLOWS FROM (USED IN) OPERATING
ACTIVITIES:

  Net loss                                 $ (8,431)      $(4,265)     $(23,479)
  Adjustments to reconcile net loss to
    net cash provided by (used in) operating
    activities:
    Amortization of customer lists           23,183        19,749        20,527
    Depreciation of plant and equipment       5,933         6,469        12,374
    Amortization of deferred charges          5,548         6,177         6,142
    Share of (income)loss of Star Gas           -           1,973          (728)
    Provision for losses on accounts          1,836         1,421         1,856
      receivable
    Provision for supplemental benefits         264           373         1,407
    Loss on early extinguishment of debt        867           654         1,436
    Gain on sale of business                    -             -            (788)
    Other                                       138          (135)          544

    Change in Operating Assets and
    Liabilities, net of effects of
      acquisitions and
      dispositions:
      Decrease (increase) in accounts         1,704        (3,752)      (19,285)
        receivable
      Decrease (increase) in inventory        1,736        (3,498)       (3,391)
      Increase in current assets               (642)         (119)         (430)
      Decrease (increase) in other assets       110          (214)          240
      Increase (decrease)in accounts          1,375        (1,330)        5,872
        payable
      Increase (decrease) in customer
        credit balances                       3,006         2,303        (5,938)
      Increase (decrease) in unearned
        service contract revenue               (161)        1,315         1,201
      Increase in accrued expenses              171         4,328           733
                                           --------      --------      --------

  NET CASH PROVIDED BY (USED IN) OPERATING
    ACTIVITIES                               36,637        31,449        (1,707)
                                           --------      --------      --------


CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:

  Sale of Star Gas Limited Partnership                          
    Interest                                      -             -        51,046
  Acquisitions                              (15,399)      (26,411)      (26,438)
  Capital expenditures                       (3,232)       (4,172)      (11,174)
  Proceeds from sale of business               -             -            1,477
  Net proceeds from sales of fixed assets       294           283         1,702
  Investment in Star Gas Corporation,
    net of cash acquired                    (16,000)       (1,372)          -
                                           --------      --------      --------

  NET CASH PROVIDED BY (USED IN)
    INVESTING ACTIVITIES                    (34,337)      (31,672)       16,613
                                           --------      --------      --------












             See accompanying notes to consolidated financial statements


                                       F-6

<PAGE>


              PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS



     (In thousands)                           Years Ended December 31,
                                        ------------------------------------
                                         1993          1994          1995
                                        -------      --------      ---------

     CASH FLOWS FROM FINANCING
     ACTIVITIES:
       Net proceeds from Star
        Gas Corporation                    -             -           83,687
        debt offering
       Net proceeds from issuance
        of common stock                    -            1,074        18,656
       Net proceeds from issuance
        of subordinated notes           48,068         71,088       120,350
       Repayment of notes payable          -          (50,655)      (80,206)
       Redemption of preferred             -           (4,167)      (24,133)
        stock
       Repurchase of common stock          -           (5,146)      (14,150)
       Repurchase of subordinated      (25,369)           -             -
         notes
       Credit facility borrowings      127,000         45,200        20,000
       Credit facility                (131,000)       (49,000)      (49,100)
         repayments
       Decrease (increase) in
         restricted cash                (5,000)        20,000        (6,000)
       Cash dividends paid             (14,580)       (15,526)      (18,201)
       Other                              (665)        (1,785)       (2,998)
                                      --------       --------     ---------

         NET CASH PROVIDED BY (USED IN)
             FINANCING ACTIVITIES       (1,546)        11,083        47,905
                                      --------      ---------     ---------

       NET INCREASE IN CASH                754         10,860        62,811

       CASH AT BEGINNING OF YEAR         3,860          4,614        15,474
                                      --------     ----------     ---------

       CASH AT END OF YEAR            $  4,614     $   15,474     $  78,285
                                      ========     ==========     =========



     SUPPLEMENTAL DISCLOSURE OF
     CASH FLOW INFORMATION:

       Cash paid during the year for:

         Interest                     $ 21,706     $   22,712     $  35,122
         Income taxes                      496            382         3,255

       Noncash investing
         activities:
         Acquisitions                      -           (9,549)       (8,000)

       Noncash financing
         activities:
         Issuance of notes payable         -            9,549         8,000










             See accompanying notes to consolidated financial statements





                                       F-7


<PAGE>


               PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      (IN THOUSANDS EXCEPT PER SHARE DATA)


(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 Principles of Consolidation
 ---------------------------

 The consolidated financial statements include the accounts of Petroleum Heat
 and Power Co., Inc. (Petro) and its subsidiaries (the Company), each of
 which is wholly owned. The Company currently operates in twenty-seven major
 markets in the Northeast, including the metropolitan areas of Boston, New
 York City, Baltimore, Providence and Washington, DC, serving approximately
 four hundred thousand customers in those areas. Credit is granted to
 substantially all of these customers with no individual account comprising a
 concentrated credit risk.

 Basis of Presentation
 ---------------------

 Certain reclassifications have been made to the 1993 and 1994 financial
 statements to conform to the 1995 presentation.

 Use of Estimates
 ----------------

 The preparation of financial statements in accordance 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 revenue and expenses during the
 reporting period. Actual results could differ from those estimates.


 Inventories
 -----------

 Inventories are stated at the lower of cost or market using the first-in,
 first-out method. The components of inventories were as follows at the dates
 indicated:

                                                      December 31,
                                                 ----------------------
                                                   1994          1995
                                                 --------     ---------
        Fuel oil and propane gas               $  11,778      $  11,764
        Parts, appliances and equipment            9,968          8,649
                                                 ---------    ---------
                                               $  21,746      $  20,413
                                                 =========    =========

 Property, Plant and Equipment
 -----------------------------

 Property, plant and equipment are carried at cost. Depreciation is computed
 using the straight-line method over the estimated useful lives of the
 assets.

 Customer Lists and Deferred Charges
 -----------------------------------

 Customer lists are recorded at cost less accumulated amortization.
 Amortization for the fuel oil customer lists is computed using the
 straight-line method with 90% of the cost amortized over six years and 10%
 of the cost amortized over 25 years. Amortization for propane customer lists
 was computed using the straight-line method with cost amortized over fifteen
 years.

 Deferred charges include goodwill, acquisition costs and payments related to
 covenants not to compete. The covenants are amortized using the
 straight-line method over the terms of the related contracts; acquisition
 costs are amortized using the straight-line method over a six-year period;
 while goodwill is amortized using the straight-line method over a
 twenty-five year period. Also included as deferred charges are the costs
 associated with the issuance of the Company's subordinated debt. Such costs
 are being amortized using the interest method over the lives of the
 instruments.

 The Company assesses the recoverability of intangible assets at the end of
 each fiscal year and, when appropriate, at the end of each fiscal quarter,
 by comparing the carrying values of such intangibles to market values, where
 a market exists, supplemented by cash flow analyses to determine that the
 carrying values are recoverable over the remaining estimated lives of the
 intangibles through undiscounted future operating cash flows. When an
 intangible asset is deemed to be impaired, the amount of intangible
 impairment is measured based on market values, as available, or by projected
 operating cash flows, using a discount rate reflecting the Company's assumed
 average cost of funds.


                                       F-8


<PAGE>


               PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                      (IN THOUSANDS EXCEPT PER SHARE DATA)


 (1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)


 Customer Credit Balances
 ---------------------------

 Customer credit balances represent payments received from customers pursuant
 to a budget payment plan (whereby customers pay their estimated annual fuel
 charges on a fixed monthly basis) in excess of actual deliveries billed.

 Revenue Recognition
 -------------------

 Sales of fuel oil, propane, heating equipment and propane appliances are
 recognized at the time of delivery of the product to the customer or at the
 time of sale or installation. Revenue from repairs and maintenance service
 is recognized upon completion of the service. Payments received from
 customers for heating equipment service contracts are deferred and amortized
 into income over the terms of the respective service contracts, on a
 straight line basis, which generally do not exceed one year.

 Concentration of Revenue with Maximum Guaranteed Price Customers
 ----------------------------------------------------------------

 Approximately 9% of the Company's total sales are made to individual
 customers under an agreement pre-establishing the maximum sales price of oil
 over a twelve month period. The maximum price at which oil is sold to these
 individual customers is renegotiated in April of each year in light of then
 current market conditions. The Company has historically purchased
 approximately half of the oil it sells to these maximum guaranteed price
 customers in advance and at a fixed cost. Should events occur after a
 customer sales price is established that increases the cost of oil above the
 amount anticipated, margins for the maximum guaranteed price customers whose
 oil was not purchased in advance would be lower than expected, while those
 customers whose oil was purchased in advance would be unaffected.
 Conversely, should events occur during this period that decrease the cost of
 oil below the amount anticipated, margins for the maximum guaranteed price
 customers whose oil was purchased in advance could be lower than expected,
 while those customers whose oil was not purchased in advance would be
 unaffected or higher than expected.

 Environmental Costs
 -------------------

 The Company expenses, on a current basis, costs associated with managing
 hazardous substances and pollution in ongoing operations. The Company also
 accrues for costs associated with the remediation of environmental pollution
 when it becomes probable that a liability has been incurred and the amount
 can be reasonably estimated.

 Income Taxes
 ------------

 The Company files a consolidated Federal Income Tax return with its
 subsidiaries. Deferred tax assets and liabilities are recognized for the
 future tax consequences attributable to differences between the financial
 statement carrying amount of assets and liabilities and their respective tax
 bases and operating loss carryforwards. Deferred tax assets and liabilities
 are measured using enacted tax rates expected to apply to taxable income in
 the years in which those temporary differences are expected to be recovered
 or settled.

 Pensions
 --------

 The Company funds accrued pension costs currently on its pension plans, all
 of which are noncontributory.









                                       F-9


<PAGE>


               PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                      (IN THOUSANDS EXCEPT PER SHARE DATA)


(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)


Net Income (Loss) per Common Share
----------------------------------

Net income (loss) per common share is computed utilizing the three class
method based upon the weighted average number of shares of Class A Common
Stock, Class B Common Stock and Class C Common Stock outstanding, after
adjusting the net loss for preferred dividends and the accretion of 1991
Redeemable Preferred Stock, aggregating $3,367, $3,511 and $3,263 for the
years ended 1993, 1994 and 1995 respectively. Fully diluted net income
(loss) per common share is not presented because the effect is not material
or is antidilutive.

Accounting Changes
------------------

In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 121 - "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." Commencing in 1996, SFAS No. 121 requires companies to review assets
for possible impairment and provides guidelines for recognition of
impairment losses related to long-lived assets, certain intangibles and
assets to be disposed. The impact of the adopting SFAS No. 121 will be
immaterial if any.

In October 1995, the FASB issued SFAS No. 123 - "Accounting for Stock-Based
Compensation." As allowable by SFAS No. 123, the Company will not recognize
compensation cost for stock-based employee compensation arrangements, but
rather will disclose in the notes to the consolidated financial statements
the impact on net income and earnings per share as if the fair value based
compensation cost had been recognized commencing in 1996.

(2)  STAR GAS ACQUISITION

In December 1993, the Company acquired an approximate 29.5% equity interest
(42.8% voting interest) in Star Gas for $16.0 million in cash. Of such $16.0
million investment, $14.0 million was invested directly in Star Gas through
the purchase of Series A 8% pay-in-kind Cumulative Convertible Preferred
Stock of Star Gas, which was convertible into common stock of Star Gas, and
$2.0 million was invested through Star Gas Holdings, Inc. ("Holdings"), a
newly formed corporation. Each of the other investors in Star Gas granted
the Company an option, exercisable to December 31, 1998, to purchase such
investor's interest in Star Gas (or, in the case of Holdings, to purchase
such investor's interest in Holdings).

The Company was managing Star Gas' business under a Management Services
Agreement which provided for an annual cash fee of $0.5 million and an
annual bonus equal to 5% of the increase in Star Gas' EBITDA over the fiscal
year ended September 30, 1993, payable in common stock of Star Gas pursuant
to a formula set forth in the Management Services Agreement. Star Gas also
reimbursed the Company for its expenses and the cost of certain Company
personnel.

In December 1994, the Company exercised its right to purchase the remaining
outstanding common equity of Star Gas by paying $3.8 million in cash and
issuing approximately 2.5 million shares ($22.1 million) of the Company's
Class A Common Stock. The Company also incurred $0.9 million of acquisition
related cost in connection with the Star Gas acquisition.

The acquisition was accounted for as a purchase and accordingly, the
purchase price was allocated to the underlying assets and liabilities based
upon the Company's estimate of their respective fair value at the date of
acquisition. The fair value of assets acquired was $141.3 million (including
$3.3 million in cash) and liabilities and preferred stock was $109.5
million. The excess of the purchase price over the fair value of assets
acquired and liabilities assumed was $9.0 million and was being amortized
over a period of twenty-five years.



                                      F-10
<PAGE>
              PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                      (IN THOUSANDS EXCEPT PER SHARE DATA)


(2) STAR GAS ACQUISITION - (CONTINUED)

    The Company's investment in Star Gas Corporation was accounted for using the
    equity method from December 23, 1993 to December 7, 1994, at which time the
    Company exercised its right to purchase the remaining outstanding common
    equity of Star Gas (the "Star Gas Acquisition"). From December 8, 1994 to
    December 19, 1995 while Star Gas was a wholly owned subsidiary of Petro,
    Star Gas operations, assets and liabilities were included in the
    consolidated financial statements of the Company.

    In November 1995, Star Gas organized Star Gas Partners, L.P. a Delaware
    limited partnership ("Partnership") and Star Gas and the Partnership
    together organized Star Gas Propane, L.P., a Delaware limited partnership
    ("Operating Partnership"). In December 1995, Petro transferred substantially
    all of its propane assets and liabilities to Star Gas, and Star Gas
    transferred ("Star Gas Conveyance") substantially all of its assets
    (including the propane assets transferred by Petro) in exchange for a
    general partnership interest in the Operating Partnership and the assumption
    by the Operating Partnership of substantially all of the liabilities of Star
    Gas. The total value of the assets conveyed to the Operating Partnership was
    $156.5 million. Concurrently with the Star Gas Conveyance, Star Gas issued
    approximately $85.0 million in First Mortgage Notes to certain institutional
    investors. In connection with the Star Gas Conveyance, the Operating
    Partnership assumed $91.5 million of Star Gas liabilities including the
    $85.0 million of First Mortgage Notes; however, Star Gas retained
    approximately $83.7 million in cash from the proceeds of the First Mortgage
    Notes. As a result of the foregoing transactions, Star Gas received a 46.5%
    equity interest in the Partnership and Petro received distributions from the
    public sale of Master Limited Partnership units of $51.0 million in cash. In
    order for the Partnership to begin operations with $6.2 million of working
    capital, Star Gas and the Operating Partnership agreed that the amount of
    debt assumed by the Operating Partnership would be adjusted upward or
    downwards to the extent that the working capital of the Operating
    Partnership at closing was more or less than $6.2 million. At closing, the
    net working capital of the Operating Partnership was $9.2 million and as a
    result, $3.0 million was paid to Petro in January 1996.

    To enhance the Partnership's ability to pay a minimum quarterly distribution
    on its common units, Star Gas agreed, subject to certain limitations, to
    contribute up to $6.0 million in additional capital to the Partnership if,
    and to the extent that, the amount of available cash constituting operating
    surplus with respect to any quarter is less than the amount necessary to
    distribute the minimum quarterly distribution on all outstanding common
    units for such quarter. These funds are now restricted at the Star Gas
    level, but will be released to Petro as certain quarterly targets are
    achieved.

    As a result and from the date of the above transaction, the Company's 46.5%
    investment in the Star Gas Partnership is accounted for following the equity
    method.


   (3)  PROPERTY, PLANT AND EQUIPMENT

   The components of property, plant and equipment and their estimated useful
   lives were as follows at the indicated dates:

                                                 December 31,       Estimated
                                            --------------------
                                                1994      1995    Useful Lives
                                            ---------- ---------  ------------

           Land                             $  7,183  $  2,129
           Buildings                          13,520     6,475      20-45years
           Fleet and other equipment          49,798    37,985        3-7years
           Tanks and equipment                73,076     1,931       8-30years
           Furniture and fixtures             15,381    15,373        5-7years
           Leasehold improvements              4,014     4,540 Terms of leases
                                            --------   -------
                                             162,972    68,433

           Less accumulated depreciation      35,798    38,170
                                            --------  --------
                                            $127,174  $ 30,263
                                            ========  ========

                                      F-11

<PAGE>


               PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                      (IN THOUSANDS EXCEPT PER SHARE DATA)


(4)  NOTES PAYABLE AND OTHER LONG-TERM DEBT

 Notes payable and other long-term debt, including working capital borrowings
 and current maturities of long-term debt, consisted of the following at the
 indicated dates:

                                                         December 31,
                                                   -----------------------
                                                       1994      1995
                                                   ---------   ---------

  Notes payable to banks under credit
   facility (a)                                    $  24,000        $  -
  Notes payable to bank under revolving
   credit facility of subsidiary (b)                   5,100           -
  Star Gas long-term debt (c)                         65,350           -
  Notes payable in connection with the purchase
  of fuel oil dealers and other notes payable, 
  due in monthly, quarterly and annual 
  installments with interest at various rates
  ranging from 6% to 10% per annum, maturing at 
  various dates through  the year 2004                10,318      18,930
Obligations under capital leases  (d)                    530           -

                                                     105,298      18,930

Less current debt                                      5,617       1,151
                                                   ---------   ---------
                                                   $  99,681   $  17,779
                                                   =========   =========


a) Pursuant to a Credit Agreement, dated December 31, 1992 as restated and
   amended (Credit Agreement), the Company was allowed to borrow up to $75
   million under a working capital revolving credit facility with a sublimit
   under a borrowing base established each month. Amounts borrowed under the
   revolving credit facility are subject to a 45 day clean-up requirement prior
   to September 30 of each year. The facility terminates on June 30, 1996. The
   Company pays a facility fee of 0.375% on the unused portion of the revolving
   credit facility. Compensating balances equal to 5.0% of the average amount
   outstanding during the relevant period are also required under the agreement.
   As collateral for the financing arrangement, the Company granted to the
   lenders a security interest in the customer lists, trademarks, trade names,
   inventories and receivables owned by the Company, including the proceeds
   therefrom. The customer lists, trademarks and trade names pledged to the
   banks under the Credit Agreement are carried on the December 31, 1995 balance
   sheet at $76.4 million, and the inventories and receivables are $20.4 million
   and $95.4 million respectively.

   On August 1, 1994, the Company amended the Credit Agreement to include a $50
   million two-year revolving credit acquisition facility, convertible into a
   three-year self amortizing loan. Pursuant to the Star Gas MLP offering, the
   Company used a portion of the proceeds it received to repay all of the
   outstanding balances of the credit acquisition facility other than
   outstanding letters-of-credit guaranteeing acquisition notes, and terminated
   the balance of the acquisition facility. In addition, the maximum amount that
   can be borrowed under the working capital revolving credit facility was
   reduced to $60 million.














                                      F-12


<PAGE>


               PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                      (IN THOUSANDS EXCEPT PER SHARE DATA)



(4)  NOTES PAYABLE AND OTHER LONG-TERM DEBT (CONTINUED)

      Interest under the Credit Agreement is payable monthly and is based upon a
      floating rate selected by the Company of either the Eurodollar Rate or the
      Alternate Base Rate, plus 0 to 50 basis points on Alternate Base Rate
      Loans and 125 to 175 basis points on Eurodollar Loans based upon the ratio
      of Consolidated Operating Profit to Interest Expense (as defined in the
      Credit Agreement). Eurodollar Rate means the prevailing rate in the
      interbank Eurodollar market adjusted for reserve requirements. Alternate
      Base Rate means the greater of (i) the prime or base rate of Chemical Bank
      in effect or (ii) the Federal funds rate in effect plus 1/2 of 1%. In
      addition, the Company is required to pay certain fees for balance
      deficiencies, if any, and unused commitments. Under the terms of the
      Credit Agreement, the Company is required, among other things, to maintain
      certain minimum levels of cash flow, as well as certain ratios on
      consolidated debt. In the event of noncompliance with certain of the
      covenants, the banks have the right to declare all amounts outstanding
      under the loans to be due and payable immediately. At December 31, 1995,
      there were no borrowings outstanding under the revolving credit facility.

   b) These amounts were outstanding under the terms of a Credit Agreement
      between Star Gas Corporation and a certain bank. The notes were repaid in
      January and February of 1995 and the Credit Agreement was terminated. The
      interest rate on such borrowings was 8.7% at December 31, 1994.

   c) The Star Gas debt consisted of 11.56% Senior Notes, 12.625% Senior
      Subordinated Notes, Senior Reset Term Notes and borrowings under a term
      loan agreement. These notes were purchased in February 1995 with a portion
      of the proceeds of the Company's $125.0 million 12 1/4% Subordinated
      Debentures issued in February 1995 (see note 5).

   d) Star Gas was bound by certain noncancellable capital lease agreements with
      former owners of acquired businesses for certain premises and related
      equipment. These capital leases were assumed by Star Gas Partners, L.P.,
      as part of the Star Gas Conveyance (see note 2).


       Aggregate annual maturities, are as follows as of December 31, 1995:

                          Years Ending
                          December 31,
                          -------------

                             1996         $ 1,151
                             1997             923
                             1998             287
                             1999           8,247
                             2000           8,138
                             Thereafter       184
                                          -------
                                          $18,930
                                          =======













                                         F-13



<PAGE>


              PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                      (IN THOUSANDS EXCEPT PER SHARE DATA)


(5)  SENIOR AND SUBORDINATED NOTES PAYABLE

    Senior and Subordinated notes payable at the dates indicated, consisted of:

                                                     December 31,
                                               -----------------------
                                                 1994           1995
                                              --------        --------
      11.85%, 12.17% and 12.18%
        Subordinated and Senior Notes due
        October 1, 1998 (a)                   $ 60,000        $ 60,000
      14.10% Subordinated and Senior Notes
        due January 15, 2001 (b)                12,500          12,500
      Subordinated and Senior Notes
        due March 1, 2000 (c)                   12,764               -
      10 1/8% Subordinated Notes due
        April 1, 2003 (d)                       50,000          50,000
      9 3/8% Subordinated Debentures due
        February 1, 2006 (e)                    75,000          75,000
      12 1/4% Subordinated Debentures due
        February 1, 2005 (f)                         -         125,000
                                              --------        --------

Total Senior and Subordinated Notes Payable    210,264         322,500

   Less short-term Subordinated Notes (e)(f)         -          44,800
   Less short-term Senior Notes (e)                  -           1,050
   Less long-term Senior Notes (e)              42,632          35,200
                                              --------        --------
      

Total long-term Subordinated Notes Payable    $167,632        $241,450
                                              ========        ========

a)On September 1, 1988, the Company authorized the issuance of $60,000 of
  Subordinated Notes due October 1, 1998 bearing interest payable
  semiannually at an average rate of 11.96%. All such notes are redeemable
  at the option of the Company, in whole or in part, from time to time,
  upon payment of a premium rate as defined.

b)On January 15, 1991, the Company authorized the issuance of $12,500 of
  14.10% Subordinated Notes due January 15, 2001 bearing interest payable
  quarterly. The notes are redeemable at the option of the Company, in
  whole or in part, from time to time, upon payment of a premium rate as
  defined. On each January 15th commencing 1996 and ending January 15,
  2000, the Company is required to repay $2,100 of the Notes. The
  remaining principal of $2,000 is due on January 15, 2001. No premium is
  payable in connection with these required payments.

c)In March 1993, the Company issued $12,764 of Subordinated Notes due
  March 1, 2000 in exchange for an equal amount of 1991 Redeemable
  Preferred Stock. On April 3, 1995, the Company redeemed these securities
  and paid a premium of approximately $1.4 million.

d)On April 6, 1993, the Company issued $50.0 million of 10 1/8%
  Subordinated Notes due April 1, 2003. These Notes are redeemable at the
  Company's option, in whole or in part, at any time on or after April 1,
  1998 upon payment of a premium rate as defined. Interest is payable
  semiannually.

e)On February 3, 1994, the Company issued $75.0 million of 9 3/8%
  Subordinated Debentures due February 1, 2006. These Debentures are
  redeemable at the Company's option, in whole or in part, at any time on
  or after February 1, 1999 upon payment of a premium rate as defined.
  Interest is payable semiannually.









                                         F-14


<PAGE>


             PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                      (IN THOUSANDS EXCEPT PER SHARE DATA)


(5)  SENIOR AND SUBORDINATED NOTES PAYABLE (CONTINUED)

        In connection with the offering of its 9 3/8% Subordinated Debentures,
        the Company received consents of the holders of a majority of each class
        of subordinated debt and redeemable preferred stock (see note 7) to
        certain amendments to the respective agreements under which the
        subordinated debt and the redeemable preferred stock were issued. In
        consideration for the consents, the Company paid to the holders of the
        subordinated debt due in 1998, 2000 and 2001 a cash payment $0.6 million
        and caused 50% of the aggregate balance or approximately $42.6 million
        of the subordinated debt at December 31, 1994 to be ranked as senior
        debt. In addition, the Company agreed to increase dividends on the
        redeemable preferred stock by $2.00 per share per annum. The Company
        also paid approximately $1.5 million in fees and expenses to obtain such
        consents. At December 31, 1995, approximately $36.3 million of the
        senior debt was outstanding.

     f) On February 3, 1995, the Company issued $125.0 million of 12 1/4%
        Subordinated Debentures due February 1, 2005. These debentures are
        redeemable at the Company's option, in whole or in part, at any time on
        or after February 1, 2000 upon payment of a premium rate as defined.
        However, at any time prior to February 1, 1998, the Company had the
        right to redeem Debentures with the net proceeds of a public offering of
        Capital Stock (as defined) of the Company, of Star Gas, or of a
        subsidiary of Star Gas, at a redemption price of 111% of the principal
        amount thereof, together with accrued and unpaid interest to the date of
        redemption, provided that at least 65% in principal amount of the
        Debentures issued remain outstanding immediately following any such
        redemption. On February 5, 1996, a portion of the proceeds received as a
        result of the Star Gas MLP Offering (see note 2) were used to retire
        $43.8 million of the $125.0 million 12 1/4% Subordinated Debentures due
        2005. The Company paid $4.8 million, representing an 11% premium to
        retire this portion of the debt. Interest on these debentures is payable
        semi-annually.

        Simultaneously with the offering of its 12 1/4% Subordinated Debentures
        due February 1, 2005, the Company also issued 2,875 shares of Class A
        Common Stock in a separate public offering. The net proceeds of the two
        offerings were approximately $139.0 million and were applied as follows:
        (i) to purchase $65.3 million of Star Gas Long-Term Debt, (ii) to
        purchase approximately $19.9 million of Star Gas preferred stock, (iii)
        $13.6 million to retire approximately 1.5 million shares of Class A
        Common Stock issued to a third party in the Star Gas acquisition and
        (iv) $14.2 million to repay approximately $12.8 million of subordinated
        and senior notes due in March 2000 (see c) at a premium of approximately
        $1.4 million. The balance of the net proceeds, approximately $26.0
        million, was made available for general corporate purposes.

     Expenses connected with the above outstanding offerings, and amendments
     thereto, amounted to approximately $15.8 million, which includes $1.2
     million paid in debt consents permitting the Star Gas MLP Offering (see
     note 2). At December 31, 1994 and 1995, the unamortized balances relating
     to notes still outstanding amounted to approximately $6.7 million and
     $11.7 million respectively, and such balances are included in deferred
     charges.

     Aggregate annual maturities for each of the next five years, are as
     follows as of December 31, 1995:

                               Years Ended
                               December 31,
                               ------------
                                  1996         $45,850
                                  1997           2,100
                                  1998          62,100
                                  1999           2,100
                                  2000           2,100



                                      F-15

<PAGE>


             PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                      (IN THOUSANDS EXCEPT PER SHARE DATA)

(6)  COMMON STOCK AND COMMON STOCK DIVIDENDS

The Company's outstanding Common Stock consists of Class A Common Stock, Class B
Common Stock and Class C Common Stock, each with various designations, rights
and preferences. In 1992, the Company restated and amended its Articles of
Incorporation increasing the authorized shares of Class A Common Stock to 40,000
and authorizing 5,000 shares of Class C Common stock, $.10 par value.

Holders of Class A Common Stock and Class C Common Stock have identical rights,
except that holders of Class A Common Stock are entitled to one vote per share
and holders of Class C Common Stock are entitled to ten votes per share. Holders
of Class B Common Stock do not have voting rights, except as required by law, or
in certain limited circumstances.

Holders of Class B Common Stock were entitled to receive Special Dividends based
upon the Company's Cash Flow, as defined, for its prior fiscal year. Special
Dividends were cumulative and payable quarterly. If not paid, dividends on any
other class of stock could not be paid until all Special Dividends in arrears
were declared and paid. During July 1994, the Company exercised its right to
terminate the Special Dividends on the Class B Common Stock, effective August
31, 1994, "the expiration date." As a result of the termination of the Special
Dividends, the holders of Class B Common Stock had the right to require the
Company to purchase their shares at $17.50 per share plus all accrued and unpaid
Special Dividends through the expiration date ($0.2763 per share for the period
July 1, 1994 through August 31, 1994). As of December 31, 1995, 203 shares of
Class B Common Stock were repurchased for approximately $3.6 million.

The following table summarizes the cash dividends declared on Common Stock and
the cash dividends declared per common share for the years indicated:

                                           Years Ended December 31,
                                    --------------------------------------
                                      1993            1994           1995
                                    -------         -------        -------
   Cash dividends declared
     Class A                        $ 9,971         $10,791        $13,716
     Class B                            408             238            -
     Class C                          1,336           1,407          1,559

   Cash dividends declared per share
     Class A                         $ .525         $   .55        $   .60
     Class B                           1.88            1.10            -
     Class C                           .525             .55            .60


Under the Company's most restrictive dividend limitation imposed by certain debt
covenants, $14.9 million was available at December 31, 1995 for the payment of
dividends on all classes of Common Stock. The amount available for dividends is
increased each quarter by 50% of the cash flow, as defined, for the previous
fiscal quarter.

On February 3, 1995, the Company issued 2,875 shares of Class A Common Stock in
a public offering in connection with the issuance of $125.0 million of 12 1/4%
Subordinated Debentures due February 1, 2005 and used a portion of the proceeds
to retire 1,521 shares of Class A Common Stock which shares were issued to a
third party in the Star Gas Acquisition (see note 5).

Beginning October 1, 1995, the Company offers a Dividend Reinvestment and Stock
Purchase Plan which provides holders of the Company's Class A Common Stock and
Class C Common Stock a vehicle to reinvest their dividends and purchase
additional shares of Class A Common Stock at a 5% discount from the current
market price without incurring any fees. In addition, optional cash deposits
receive a 3% discount from the market price. Pursuant to the plan offering, an
additional 18 Class A Common Shares were issued as of December 31, 1995.







                                      F-16


<PAGE>


               PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                      (IN THOUSANDS EXCEPT PER SHARE DATA)


(7)  PREFERRED STOCK

The Company entered into agreements dated as of August 1, 1989 with John Hancock
Mutual Life Insurance Company and Northwestern Mutual Life Insurance Company to
sell up to 250 shares of its Redeemable Preferred Stock, par value $0.10 per
share, at a price of $100 per share, which shares are exchangeable into
Subordinated Notes due August 1, 1999 (1999 Notes). In connection with receiving
consents in 1994 to modify certain covenants under which the Redeemable
Preferred Stock was issued, the Company agreed to increase dividends on the
Redeemable Preferred Stock by $2.00 per share per annum which began in February
1994. The average dividend rate on these shares is $14.33 per share.

On August 1, 1994, and on August 1 of each year thereafter, one-sixth of the
number of originally issued shares of each series of Redeemable Preferred shares
outstanding, less the number of shares of such series previously exchanged for
1999 Notes, are to be redeemed, with the final redemption occurring on August 1,
1999. The redemption price is $100 per share plus all accrued and unpaid
dividends to such August 1. As of December 31, 1994 and 1995, 208 shares and 167
shares respectively were outstanding of which 42 shares were reflected as
current.

The Company entered into an agreement dated September 1, 1991 with United States
Leasing International Inc. to sell up to 160 shares of its 1991 Redeemable
Preferred Stock, par value $.10 per share, at an initial price of $78.261 per
share, which shares were exchangeable into Subordinated Notes due March 1, 2000
(2000 Notes). The Company sold 64 shares of the Redeemable Preferred Stock in
September 1991 at $78.261 per share and 95 shares in March 1992 at $78.51 per
share, the accreted value of the initial price. The holders of the shares of
1991 Preferred Stock were entitled to receive monthly dividends based on the
annual rate of the sum of LIBOR plus 4.7%. In March 1993, the Company issued
$12,764 of 2000 Notes in exchange for all of the 1991 Redeemable Preferred
Stock. On April 1995, the Company redeemed these securities and paid a premium
of approximately $1.4 million (see note 5).

Star Gas Corporation had outstanding $8,507 of 12.625% Cumulative Redeemable
Preferred Stock and $11,459 of 12.5% Preferred Stock. These shares were
purchased by the Company with a portion of the proceeds of the public offering
completed in February 1995 (see note 5).

Preferred dividends of $3,321, $3,511 and $3,263 were declared on all classes of
preferred stock in 1993, 1994 and 1995 respectively.

Aggregate annual maturities of Redeemable Preferred Stock are as follows as of
December 31, 1995:


                          Years Ended
                          December 31,
                          ------------
                               1996       $ 4,167
                               1997         4,167
                               1998         4,167
                               1999         4,166
                               2000           -
                                          -------
                                          $16,667
                                          =======













                                      F-17


<PAGE>


             PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                      (IN THOUSANDS EXCEPT PER SHARE DATA)

(8)  PENSION PLANS

The Company has several noncontributory defined contribution and defined benefit
pension plans covering substantially all of its nonunion employees. Benefits
under the defined benefit plans are generally based on years of service and each
employee's compensation, while benefits under the defined contribution plans are
based solely on compensation. Pension expense under all plans for the years
ended December 31, 1993, 1994 and 1995 was $3,342, $3,559 and $4,378
respectively, net of amortization of the pension obligation acquired.

The following table sets forth the defined benefit plans' funded status, all of
which are underfunded, and amounts recognized in the Company's balance sheets at
the indicated dates:

                                                          December 31,
                                                    -----------------------
                                                       1994          1995
                                                    ---------      --------
      Actuarial present value of benefit obligations:
      Accumulated benefit obligations, including
      vested benefits of $25,069 and $26,000        $ 25,446       $ 26,486
                                                    ========       ========

      Projected benefit obligation                  $(28,299)      $(29,770)
      Plan assets at fair value (primarily
        listed stocks and bonds)                      16,964         19,749
                                                    --------       --------
      Projected benefit obligation in excess
        of plan assets                               (11,335)       (10,021)
      Unrecognized net loss from past
        experience different from the assumed
        and effects of changes in assumptions          9,604          8,136
      Unrecognized net transitional obligation           487            428
      Unrecognized prior service cost due to
        plan amendments                                  705            714
      Additional liability                            (7,943)        (5,994)
                                                    --------       --------

      Accrued pension cost for defined benefit
        plans                                       $ (8,482)      $ (6,737)
                                                    ========       ========


Net pension cost for defined benefit plans for the periods indicated included
the following components:
                                            Years Ended December31,
                                    ----------------------------------------
                                       1993            1994           1995
                                    ---------       ---------      ---------
    Service cost-benefits earned
      during the period             $  1,392        $  1,341       $  1,459
    Interest cost on projected
      benefit obligation               1,778           1,911          2,032
    Actual (return) loss on assets      (995)            339         (1,452)
    Net amortization and deferral
      of (gains) and losses              207          (1,150)           853
                                    --------        --------       --------


      Net periodic pension cost
       for defined benefit plans    $  2,382        $  2,441       $  2,892
                                    ========        ========       ========




      Assumptions used in the above accounting were:

       Discount rate                                  7.0%
       Rates of increase in compensation levels       4.0%
       Expected long-term rate of return on assets    8.5%







                                      F-18


<PAGE>


              PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                      (IN THOUSANDS EXCEPT PER SHARE DATA)

(8) PENSION PLANS - (CONTINUED)

In addition, the Company made contributions to union-administered pension plans
during the years ended December 31, 1993, 1994 and 1995 of $2,867, $3,078 and
$3,148, respectively.

The Company recorded an additional minimum pension liability for underfunded
plans of $7,843 as of December 31, 1994, representing the excess of unfunded
accumulated benefit obligations over plan assets. From December 31, 1994 to
December 31, 1995 this amount has decreased by $1,829 bringing the total minimum
pension liability to $6,014 at December 31, 1995. A corresponding amount is
recognized as an intangible asset except to the extent that these additional
liabilities exceed the related unrecognized prior service costs and net
transition obligation, in which case the increase in liabilities is charged as a
reduction of stockholders' equity of $4,872 as of December 31, 1995.

In connection with the purchase of shares of a predecessor company as of January
1, 1979 by a majority of the Company's present holders of Class C Common Stock,
the Company assumed a pension liability in the aggregate amount of $1,512 as
adjusted, representing the excess of the actuarially computed present value of
accumulated vested plan benefits over the net assets available for such
benefits. Such liability, which amounted to $1,160 at December 31, 1995, is
being amortized over 40 years.

Under a 1992 supplemental benefit agreement, Malvin P. Sevin, the Company's then
Chairman and Co-Chief Executive Officer, was entitled to receive $25 per month
for a period of one hundred twenty months following his retirement. In the event
of his death, his designated beneficiary is entitled to receive such benefit.
Mr. Sevin passed away in December 1992, prior to his retirement. The amount
accrued for such benefit payable net of payments made at December 31, 1994 and
1995 were $1,706 and $1,554 respectively.

(9) LEASES

The Company leases office space and other equipment under noncancelable
operating leases which expire at various times through 2008. Certain of the real
property leases contain renewal options and require the Company to pay property
taxes.

The future minimum rental commitments at December 31, 1995 for all operating
leases having an initial or remaining noncancelable term of one year or more are
as follows:

                                               Operating
              Years Ending December 31,          Leases

                        1996                   $  3,426
                        1997                      2,766
                        1998                      2,624
                        1999                      2,165
                        2000                      1,634
                     Thereafter                   4,901
                                               --------
                                               $ 17,516
                                               ========

   Rental expense under operating leases for the years ended December 31, 1993,
   1994 and 1995 was $5,346, $6,114 and $7,624 respectively.














                                      F-19


<PAGE>


              PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                      (IN THOUSANDS EXCEPT PER SHARE DATA)


(10)  INCOME TAXES

Income tax expense was comprised of the following for the indicated periods:


                                  Years Ended December 31,
                               ----------------------------
                                1993       1994       1995
                               -----      ------     ------

           Current:
              Federal          $  -        $  -      $    -
              State               400        600        500
                               ------     ------     ------
                               $  400     $  600     $  500
                               ======     ======     ======


The sources of deferred income tax expense and the tax effects of each were as
follows:


                                                Years Ended December 31,
                                         --------------------------------------
                                           1993            1994           1995
                                         -------         -------         ------

 Excess of tax over book depreciation    $   242         $ 1,338        $ 1,624
 Excess of book over tax
  amortization expense                        -             (397)        (1,139)
 Excess of book over tax
  vacation expense                           (93)           (103)           (75)
(Excess of book over tax) tax
  over book bad debt expense                  92             (25)            44
(Excess of book over tax) tax over
  book supplemental benefit expense           12               7            (14)
 Deferred service contracts                   18              -              -
 Equity in income (loss) of Star Gas          -             (671)          (187)
 Other, net                                  (60)            (24)           (40)
 Recognition of tax benefit of net
  operating loss to the extent of
  current and previously recognized
  temporary differences                   (2,606)         (1,185)        (7,843)
 Change in valuation allowance             2,395           1,060          7,630
                                         -------         --------       -------
                                         $   -           $   -          $   -
                                         =======         ========       =======























                                      F-20
<PAGE>



              PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                      (IN THOUSANDS EXCEPT PER SHARE DATA)

(10)  INCOME TAXES - (CONTINUED)

      The components of the net deferred tax assets and the related valuation
allowance for 1994 and 1995 using current rates were as follows:

                                          December 31,            December 31,
                                             1994                     1995
                                          ------------            -------------

Net operating loss carryforwards           $ 18,064                 $ 25,907
Excess of tax over book depreciation         (3,462)                  (5,086)
Excess of book over tax amortization            397                    1,536
Excess of book over tax vacation expense      1,238                    1,313
Excess of book over tax (tax over
  book) supplemental benefit expense            652                      666
Excess of book over tax (tax over
  book) bad debt expense                        373                      329
Equity in loss of Star Gas                      671                      858
Other, net                                      142                      182
                                          ---------               ----------
                                             18,075                   25,705
Valuation allowance                         (18,075)                 (25,705)
                                          ---------               ----------
                                          $     -                 $       -
                                          =========               ==========


A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax asset will not be realized. The Company has
determined, based on the Company's recent history of annual net losses, that a
full valuation allowance is appropriate.

At December 31, 1995, the Company had the following income tax loss
carryforwards for Federal Income Tax reporting purposes:

                                         Expiration
                                            Date       Amount
                                         ----------    ------

                                            2005      $26,651
                                            2006       15,012
                                            2007        1,367
                                            2008        8,400
                                            2009        1,662
                                            2010       23,105
                                                      -------
                                                      $76,197
                                                      =======























                                      F-21


<PAGE>


              PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
                      (IN THOUSANDS EXCEPT PER SHARE DATA)

(11)  RELATED PARTY TRANSACTIONS

In connection with the acquisition of customer lists, equipment and other assets
of previously unaffiliated fuel oil businesses, the Company entered into lease
agreements covering certain vehicles with individuals, including certain
stockholders, directors and executive officers. These leases were on a
month-to-month basis, on terms comparable with leases from unrelated parties.
Annual rentals under these leases were approximately $125. In August 1995, the
Company purchased these vehicles for an aggregate $325, based upon an
independent appraisal.

The Company leases a building from certain related parties for $75 per annum
plus escalations, under a lease agreement that expires in the year 2000. The
Company leases another building from certain related parties, some of whom are
stockholders, directors and executive officers of the Company, for $250 per
annum plus escalations, under a lease agreement that expires in the year 2000.
Both those lease agreements were established using an independent fair market
rental evaluation.

In October 1986, Irik P. Sevin purchased one hundred sixty-one thousand shares
of Class A Common Stock and forty thousand shares of Class C Common Stock (after
giving retroactive effect to the exchange of Class C Common Stock for Class A
Common Stock in July 1992) of the Company for $1,280 (which was the fair market
value as established by the Pricing Committee pursuant to the Stockholders'
Agreement). The purchase price was financed by a note originally due December
31, 1989, but which has been extended to December 31, 1999. The note was amended
in 1995 requiring annual payments of interest and principal, payable in cash or
Class A Common Stock of the Company, until complete satisfaction of the note on
December 31, 1999. In December 1995 Mr. Sevin surrendered fifty-nine thousand
Class A Common Shares representing $439 of value as determined by the stock
valuation criteria defined in the note. Interest accrues on the outstanding
balance of the note at the LIBOR rate in effect for each month plus 0.75%. At
December 31, 1995, the outstanding balance of the note was $1,312. At any time
prior to the due date of the note, Mr. Sevin has the right to require the
Company to repurchase all or any of these shares (as adjusted for stock splits,
dividends and the like) for $6.35 per share (the Put Price). Mr. Sevin has
entered into an agreement with the Company that he will not sell or otherwise
transfer to a third party any of the shares of Class A Common Stock or Class C
Common Stock received pursuant to this transaction until the note has been paid
in full.

In 1986, the Company issued stock options to purchase one hundred and five
thousand shares and seventy thousand shares, of the Class A Common Stock of the
Company to Irik P. Sevin and Malvin P. Sevin, respectively. The option price for
the shares of Class A Common Stock was $20 per share. These options were
nontransferable and were to expire on November 30, 1994. As a result of stock
dividends in the form of Class A Common Stock and Class B Common Stock declared
by the Company in December 1986, the exchange of Class C Common Stock for Class
A Common Stock in July 1992, and special antidilution adjustments, the options
held by Irik P. Sevin then applied to three hundred and fourteen thousand shares
of Class A Common Stock and seventy-nine thousand shares of Class C Common Stock
and the options held by Malvin P. Sevin then applied to two hundred and ten
thousand shares of Class A Common Stock and fifty-two thousand shares of Class C
Common Stock. The adjusted option price for each such share is $4.10. In
November 1994, the options belonging to Malvin P. Sevin were exercised by his
estate, while Irik P. Sevin's options were extended to November 30, 1997 on
generally the same terms and conditions as the original options, however, Irik
P. Sevin's extended options will vest in three equal annual installments on each
November 30th.













                                      F-22


<PAGE>


              PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
                      (IN THOUSANDS EXCEPT PER SHARE DATA)

(11)  RELATED PARTY TRANSACTIONS - (CONTINUED)

On December 28, 1987, the Company issued stock options to purchase twenty-four
thousand shares of Class A Common Stock and six thousand shares of Class C
Common Stock (after giving retroactive effect to the exchange of Class C Common
Stock for Class A Common Stock in July 1992) to Irik P. Sevin. The option price
for each such share is $7.50. These options were not transferable and expired
unexercised on January 1, 1996.

On March 3, 1989, the Company issued stock options to purchase seventy-two
thousand shares of Class A Common Stock and eighteen thousand shares of Class C
Common Stock (after giving retroactive effect to the exchange of Class C Common
Stock for Class A Common Stock in July 1992) to Irik P. Sevin and forty-eight
thousand shares of Class A Common Stock and twelve thousand shares of Class C
Common Stock (after giving retroactive effect to the exchange of Class C Common
Stock for Class A Common Stock in July 1992) to Malvin P. Sevin. The option
price for each such share is $11.25. These options are nontransferable. Malvin
P. Sevin's options expired in March 1994 unexercised while the expiration date
of Irik P. Sevin's options were extended to March 3, 1999.

In March 1994 the Company issued stock options to Irik P. Sevin to purchase one
hundred thousand shares of Class A Common Stock. The option price for each such
share is $8.50, the then market value of the stock on the date the options were
granted. These options are non-transferable and expire on March 31, 2004.

None of the aforementioned options of Irik and Malvin Sevin were granted under a
Stock Option Plan and no other options were authorized at the time the options
were issued. All options granted vested upon issuance and were issued at an
exercise price that was estimated to be fair value at the date of grant.

On November 1, 1992, the Company authorized for issuance fifty thousand options
for the purchase of Class A Common Stock to an officer of the Company,
exercisable at $11.00 per share, the fair market value at the date of grant.
Options for twenty-five thousand shares were issued on November 1, 1992 and
options for twenty-five thousand were issued in June 1993. Twenty percent of the
options vest and become exercisable on each of the next five anniversary dates
of the issuance.

On August 23, 1994, the Company issued stock options to another officer of the
Company to purchase fifty thousand shares of Class A Common Stock under the
Company's incentive stock option plan. The option price for each such share is
$7.50, the then market value of the stock on the date the options were granted.
Twenty percent of the options become exercisable on each of the next five
anniversary dates of the grant.

On September 1, 1995, the Company issued stock options to a senior manager of
the Company to purchase fifty thousand shares of Class A Common Stock. The
option price for each such share is $8.00, the then market value of the stock on
the date the options were granted. All of the options vest and became
exercisable on the day the options were granted.

In connection with the Star Gas acquisition and in accordance with the option
agreements entered into during the Company's initial investment in Star Gas,
certain other investors of Star Gas received options on seven hundred thirty-two
thousand shares of the Company's Class A Common Stock exercisable through
December 1999 at $8.77 per share in exchange for certain options they held in
Star Gas. Furthermore, as part of this agreement, Petro was given the right to
purchase the options issued in connection with the Star Gas acquisition at a
cost of $2.23 per option, exercisable up to the earlier of the option exercise
or expiration date.












                                      F-23


<PAGE>


              PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
                      (IN THOUSANDS EXCEPT PER SHARE DATA)

(11)  RELATED PARTY TRANSACTIONS - (CONTINUED)

Information   relating  to  stock  options  during  1993,   1994  and  1995  are
summarized as follows:

                                                   Average
                            Number of Shares    Option Price
                          ------------------
                           Class A   Class C      Per Share       Total
                          ---------  --------   -----------     --------

Shares under option at
 December 31, 1993 (prices
 range from $4.10 to $11.25
 per share)                  718       167          $ 5.82      $ 5,147

Granted                      882        -             8.67        7,648
Exercised                   (209)      (52)           4.10       (1,073)
Expired                      (48)      (12)          11.25         (675)
                           -----     -----          ------     --------

Shares under option at
 December 31, 1994 (prices
 range from $4.10 to 
$11.25 per share)          1,343       103            8.34       11,047

Granted                       50        -             8.00          400
Exercised                    -          -              -            -
Expired                      -          -              -            -
                          ------    ------          ------     --------

Shares under option at
 December 31, 1995 (prices
 range from $4.10 to 
$11.25 per share)          1,393       103           $7.66      $11,447
                          ======    ======          ======      =======

Shares exercisable at
 December 31, 1995         1,328       103           $7.60      $10,872
                          ======    ======          ======      =======

The existing holders of Class C Common Stock of the Company have entered into a
Shareholders' Agreement which provides that each will vote his shares to elect
certain designated directors. The Shareholders' Agreement also provides for
first refusal rights to the Company if a holder of Class C Common Stock receives
a bona fide written offer from a third party to buy such holder's Class C Common
Stock.
























                                      F-24


<PAGE>


              PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
                      (IN THOUSANDS EXCEPT PER SHARE DATA)

(12)  ACQUISITIONS

During 1993, the Company acquired the customer lists and equipment of nine
unaffiliated fuel oil dealers. The aggregate consideration for these
acquisitions, accounted for by the purchase method, was approximately $13,600.
In addition, during 1993, the Company acquired a 29.5% interest in Star Gas
Corporation for $16,000. (See note 2)

During 1994, the Company acquired the customer lists and equipment of nine
unaffiliated fuel oil dealers. The aggregate consideration for those
acquisitions, accounted for by the purchase method, was approximately $34,100.

During 1995, the Company acquired the customer lists and equipment of ten
unaffiliated fuel oil dealers. The aggregate consideration for these
acquisitions, accounted for by the purchase method, was approximately $32,200.

Sales and net income of the acquired companies are included in the consolidated
statements of operations from the respective dates of acquisition.

Unaudited pro forma data giving effect to the purchased businesses and to the
acquisition of Star Gas Corporation, as described in Note 2, as if they had been
acquired on January 1 of the year preceding the year of purchase, with
adjustments, primarily for amortization of intangibles, and to give effect to
the subsequent Debenture and Stock Offerings (see note 5) as if the financings
had occurred on January 1, 1993, are as follows:


                                                Years Ended December31,
                                          --------------------------------
                                            1993         1994         1995
                                          --------     --------     ------

      Net sales                           $716,072     $706,956     $631,903
      Loss before extraordinary item       (44,747)      (6,419)     (22,153)
      Net loss                            $(45,614)    $ (7,194)    $(23,589)
                                          ========     ========     ========

      Net income (loss) per common share
           Class A Common Stock           $  (1.96)    $   (.42)    $ (1.06)
           Class B Common Stock               1.88         1.10         -
           Class C Common Stock           $  (1.96)    $   (.42)    $ (1.06)
                                          ========     ========     =======





























                                      F-25


<PAGE>



              PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
                      (IN THOUSANDS EXCEPT PER SHARE DATA)

(13)  LITIGATION

The Company is not party to any litigation which individually or in the
aggregate could reasonably be expected to have a material adverse effect on the
Company.


(14)  DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS

Cash,  Restricted  Cash,  Accounts  Receivable,  Notes  Receivable  and Other
-----------------------------------------------------------------------------
Current Assets,  Working  Capital  Borrowings,  Accounts  Payable and Accrued
-----------------------------------------------------------------------------
Expenses
--------

The carrying amount approximates fair value because of the short maturity of
these instruments.

Long-Term  Debt,  Subordinated  Notes  Payable,  Senior  Notes  Payable  and
----------------------------------------------------------------------------
Cumulative Redeemable Exchangeable Preferred Stock
--------------------------------------------------

The fair values of each of the Company's long-term financing instruments,
including current maturities, are based on the amount of future cash flows
associated with each instrument, discounted using the Company's current
borrowing rate for similar instruments of comparable maturity.

      The estimated fair value of the Company's financial instruments are
summarized as follows:

                                At December 31, 1994     At December 31, 1995
                               ----------------------    --------------------
                               Carrying   Estimated      Carrying   Estimated
                                Amount    Fair Value      Amount   Fair Value
                               --------   ----------      -------  ----------

Long-term debt                 $ 36,126   $ 34,896       $ 18,930  $ 18,390
Star Gas long term debt          65,350     65,350            -         -
Subordinated notes payable      167,632    158,385        286,250   304,992
Senior notes payable             42,632     35,176         36,250    38,805
Star Gas preferred stock         19,966     19,966            -         -
Cumulative redeemable
 exchangeable preferred stock    20,833     21,909         16,667    18,302

Limitations
-----------

      Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates are subjective in nature and involve uncertainties and matters
of significant judgment and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.





















                                      F-26


<PAGE>


              PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
                      (IN THOUSANDS EXCEPT PER SHARE DATA)


(15)  SEGMENT INFORMATION

The Company's operations were classified into two business segments: Home
Heating Oil and Propane. For the year ended December 31, 1994, the Propane
operations were consolidated with the Home Heating Oil operations from December
7, 1994 to December 31, 1994, the period that Star Gas became a wholly owned
subsidiary of the Company. For the year ended December 31, 1995, the Propane
operations were consolidated with the Home Heating Oil operations from January
1, 1995 to December 19, 1995, the period that Star Gas was still a wholly owned
subsidiary of the Company (see note 2).

<TABLE>
<CAPTION>


                        Year Ended December 31, 1994              Year Ended December 31, 1995
                     ----------------------------------       ------------------------------------
                        Home                                     Home
                      Heating                                   Heating
                        Oil     Propane*   Consolidated           Oil       Propane** Consolidated
                     --------   -------    ------------       ----------    -------   ------------
<S>                 <C>       <C>           <C>                <C>         <C>        <C>

   Net Sales         $527,729  $ 18,948      $546,677           $509,122    $100,385   $609,507
   Gross Profit       173,680    10,016       183,696            167,447      54,235    221,682
   Operating Expenses 122,866     5,443       128,309            125,859      39,070    164,929
   Depreciation and
     Amortization      30,669     2,099        32,768             30,863       9,587     40,450
   Operating Income    20,145     2,474        22,619             10,725       5,578     16,303

   Assets             237,971   159,203       397,174            357,241        -       357,241
   Capital
     Expenditures    $  3,281  $    891      $  4,172           $  3,946    $  7,228   $ 11,174
</TABLE>

   * In 1994 the Propane segment incurred an equity loss, which is presented in
   the Statement of Operations as a non-operating loss, of approximately $2.0
   million representing the Company's share of the loss of Star Gas from January
   1, 1994 to the acquisition date of December 7, 1994.

   ** In 1995 the Propane segment had equity income, which is presented in the
   Statement of Operations as non-operating income, of approximately $0.7
   million representing the Company's share of income of Star Gas from December
   20, 1995, the date Star Gas became an equity investment of the Company, to
   December 31, 1995.



























                                      F-27


<PAGE>


              PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
                      (IN THOUSANDS EXCEPT PER SHARE DATA)

(16) SELECTED QUARTERLY FINANCIAL DATA - (UNAUDITED)

The seasonal nature of the Company's business results in the sale by the Company
of approximately 50% of its volume of home heating oil in the first quarter and
30% of its volume of home heating oil in the fourth quarter of each year. The
Company generally realizes net income in both of these quarters and net losses
during the warmer quarters ending June and September.

                                        Three Months Ended
                            -------------------------------------------------
                            March 31,   June 30,   Sept. 30,  Dec. 31,
                              1994        1994       1994       1994     Total
                            --------    --------   --------   -------- -------

Net sales                   $266,793    $ 69,267   $ 49,231   $161,386 $546,677
Gross profit                 103,530      17,616      6,905     55,645  183,696
Income (loss) before
  taxes, equity interest
  and extraordinary item      50,417     (22,217)   (32,678)     3,440   (1,038)

      Net income (loss)     $ 51,425    $(23,761)  $(34,464)  $  2,535 $ (4,265)
                            ========     ========  ========   ======== ========

Net income (loss) per
  common share
      Class A Common Stock  $   2.30    $  (1.11)   $ (1.67)   $   .11 $   (.37)
      Class B Common Stock       .41         .41        .28        -       1.10
      Class C Common Stock  $   2.30    $  (1.11)   $ (1.67)   $   .11 $   (.37)
                            ========    ========    =======    ======= ========




                                           Three Months Ended
                            --------------------------------------------------
                            March 31,   June 30,   Sept. 30,  Dec. 31,
                              1995        1995       1995       1995     Total
                            ---------   --------   ---------  -------- -------

Net sales                   $253,737    $ 87,639   $ 63,541  $204,590 $609,507
Gross profit                 106,405      26,397     15,773    73,107  221,682
Income (loss) before
  taxes, equity interest
  and extraordinary item      42,274     (29,824)   (40,461)    5,740  (22,271)

      Net income (loss)     $ 41,874    $(31,235)  $(40,386) $  6,268 $(23,479)
                            ========    ========   ========  ======== ========

Net income (loss) per
  common share
      Class A Common Stock  $   1.61    $  (1.17)  $  (1.65) $    .15 $  (1.06)
      Class B Common Stock       -           -          -         -        -
      Class C Common Stock  $   1.61    $  (1.17)  $  (1.65) $    .15 $  (1.06)
                            ========    ========   ========  ======== ========














                                      F-28

<PAGE>


                                                              SCHEDULE  II

              PETROLEUM HEAT AND POWER CO., INC. AND SUBSIDIARIES

                        VALUATION AND QUALIFYING ACCOUNTS
                  YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995

<TABLE><CAPTION>


                                                      Additions
                                                ---------------------     ----------------
                                  Balance at    Charged to    Charged       Other
                                  Beginning     Costs and     to Other      Changes        Balance at
Year       Description             of Year      Expenses      Account     Add(Deduct)     End of Year
----       -----------            ----------    ----------    --------    -----------     -----------

<S>   <C>                         <C>           <C>          <C>          <C>              <C>
1993  Accumulated amortization:
        Customer lists            $ 166,181     $ 23,183                                   $ 189,364
        Deferred charges             22,278        5,548                                      27,826
                                  ---------     --------                                     -------
                                  $ 188,459     $ 28,731                                   $ 217,190
                                  =========     ========                                    ========


       Allowance for doubtful
       accounts                   $   1,271     $  1,836       $  714(1)    $(2,795)(2)    $   1,026
                                  =========     ========       ======       =======          =======


1994  Accumulated amortization:
        Customer lists            $ 189,364     $ 19,749                                   $ 209,113
        Deferred charges             27,826        6,177                                      34,003
                                  ---------     --------                                     -------
                                  $ 217,190     $ 25,926                                   $ 243,116
                                  =========     ========                                    ========

                                                                            $(2,210)(2)
       Allowance for doubtful                                                   532 (3)
       accounts                   $   1,026     $  1,421       $1,000(1)    $(1,678)       $   1,769
                                  =========     ========       ======       =======          =======


1995  Accumulated amortization:
       Customer lists             $ 209,113     $ 20,527                    $(4,307)(4)    $ 225,333
       Deferred charges              34,003        6,142                     (1,022)(4)       39,123
                                  ---------     --------                    -------          -------
                                  $ 243,116     $ 26,669                    $(5,329)       $ 264,456
                                  =========     ========                    =======          =======


                                                                            $(3,323)(2)
       Allowance for doubtful                                                  (250)(4)
       accounts                   $   1,769     $  1,856       $  917(1)    $(3,573)       $     969
                                  =========     ========       ======       =======        =========

</TABLE>


(1)  Recoveries

(2)  Bad debts written off

(3)  Allowance for doubtful accounts acquired from the Star Gas acquisition

(4)  Valuation and qualifying accounts conveyed to Star Gas Partners, L.P.
      and the disposition of New Hampshire branch locations







                                      F-29

<PAGE>

                                   SIGNATURES


     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.


March 22, 1996

                                        PETROLEUM HEAT AND POWER CO., INC.
                                                               (Registrant)



                                        By:     /s/ Irik P. Sevin
                                           ---------------------------------
                                                    Irik P. Sevin


                                        President, Chairman of the Board, 
                                        Chief Executive Officer and
                                        Chief Financial and Accounting Officer


     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 dates indicated.



 /s/Irik P. Sevin          President, Chairman of             March 22, 1996
------------------------
  Irik P. Sevin            the Board, Chief Executive
                           Officer, and Chief
                           Financial and Accounting
                           Officer and Director



 /s/Audrey L. Sevin        Secretary and Director             March 22, 1996
------------------------
    Audrey L. Sevin



 /s/Phillip E. Cohen       Director                           March 22, 1996
------------------------
    Phillip E. Cohen



 /s/Paul Biddelman         Director                           March 22, 1996
------------------------
    Paul Biddelman



 /s/Richard O'Connell      Director                           March 22, 1996
------------------------
    Richard O'Connell






<PAGE>

                                    Exhibit Index
                                    -------------
<TABLE>
EXHIBIT 
NO.                                 EXHIBIT 
-------                             -------

<S>     <C>
3.1 --   Restated and Amended Articles of Incorporation, as amended, and 
         Articles of Amendment thereto.(2)

3.2 --   Restated By-Laws of the Registrant.(2)

4.1 --   Indenture,  dated as of April 1, 1993,  between  the  Company  and  Chemical  Bank,  as trustee,
         including Form of Notes.(1)

4.2 --   Form of  Indenture,  dated as of October 1, 1985 between the Company and  Manufacturers  Hanover
         Trust Company, as trustee, including Form of Notes.(3)

4.3 --   Restated and Amended Articles of Incorporation and Articles of Amendment thereto.(3)

4.4 --   Certificate  of  Designation  creating a series of  preferred  stock  designated  as  Cumulative
         Redeemable Exchangeable 1991 Preferred Stock and Certificate of Amendment relating thereto.(6)

4.5 --   Certificate  of  Designation  creating a series of  preferred  stock  designated  as  Cumulative
         Redeemable 1991 Preferred Stock.(3)

4.6 --   Form of  Indenture  between  the Company  and  Chemical  Bank,  as  trustee,  including  Form of
         Debentures.(8)

4.7 --   Certificate  of  Designation  creating a series of  Preferred  Stock  designated  as  Cumulative
         Redeemable Exchangeable 1993 Preferred stock.(8)

9.1 --   Shareholders'  Agreement  dated  as  of  July  1992,  among  the  Company  and  certain  of  its
         stockholders.(2)

10.1 --  Amended and Restated Credit Agreement dated as of December 31, 1992 among the Company,  Maxwhale
         Corp., certain banks party thereto and Chemical Bank. (1)

10.2 --  Pension Plan, as amended, of Petroleum Heat and Power Co., Inc. (2)

10.3 --  Savings Plan, as amended of Petroleum Heat and Power Co., Inc.(2)

10.4 --  Supplemental Executive Retirement Plan of Petroleum Heat and Power Co., Inc.(2)

10.5 --  Lease  dated July 15, 1981 with  respect to offices  and garage  located at 477 West John Street
         and 5 Alpha Plaza, Hicksville, New York.(4)

10.6 --  Lease dated February 15, 1982,(5) First Amendment dated February 14, 1986, and Second  Amendment
         dated July 1, 1989, with respect to offices,  garage and terminal located at 818 Michigan  Avenue,  N.E.,
         Washington, D.C.(2)

10.7 --  Lease  dated  December  1, 1985 with  respect  to office and garage  located at  3600-3620  19th
         Avenue, Astoria, New York.(3)

10.8 --  Lease dated November 1, 1985 with respect to office and garage located at 522 Grand Blvd.,
         Westbury, New York.(5)

10.9 --  Lease dated June 5, 1986 with respect to office and garage located at 2541 Richmond  Terrace Co.,  Staten
         Island, New York.(5)

10.10 -- Lease  dated  July 31,  1986 with  respect  to office  and  garage  located  at 71 Day  Street,  Norwalk,
         Connecticut.(5)

10.11 -- Lease dated July 9, 1984 with respect to office located at 1245 Westfield Avenue, Clark, New Jersey.(5)

10.12 -- Lease dated October 26, 1990 with respect to office and garage located at 1 Coffey Street,  Brooklyn, New
         York.(2)

10.13 -- Lease  dated  February  6, 1990 with  respect to office and  garage  located at 62 Oakland  Avenue and 64
         Oakland Avenue, East Hartford, Connecticut.(2)

10.14 -- Lease dated July 29, 1988 and Addendum to lease dated  August 1, 1988 with respect to office,  garage and
         terminal located at 224 North Main Street, Southampton, New York.(2)

10.15 -- Lease dated April 1, 1988 with  respect to office and garage  located at 171 Ames Court,  Plainview,  New
         York.(2)
</TABLE>



<PAGE>


                                    Exhibit Index
                                    -------------

EXHIBIT 
NO.                                 EXHIBIT 
-------                             -------

<TABLE>

<S>      <C>
10.16 -- Lease  dated  August 12,  1988 with  respect to office and  garage  located at 326 South  Second  Street,
         Emmanus, Pennsylvania.(2)

10.17 -- Lease dated July 15,  1990,  Addendum  to lease  dated July 27,  1990 and Second  Addendum to lease dated
         November  30,  1990,  with  respect  to  office  and  garage  located  at 212 Elm  Street,  North  Haven,
         Connecticut.(2)

10.18 -- Lease dated August 14, 1989 with  respect to office and garage  located at foot of South  Street,  Oyster
         Bay, New York.(2)

10.19 -- Lease and Addendum to lease dated  September  26, 1990 with  respect to office and garage  located at 930
         Park Avenue, Lakewood, New Jersey.(2)

10.20 -- Lease dated December 1, 1990 with respect to garage located at 10 Coffey Street, Brooklyn, New York.(2)

10.21 -- Lease dated May 9, 1991 with  respect to office and garage  located at 260 Route 10 East,  Whippany,  New
         Jersey.(2)

10.22 -- Lease  dated  June 1, 1987 with  respect  to garage  located  at 817  Pennsylvania  Avenue,  Linden,  New
         Jersey.(2)

10.23 -- Lease  dated  June 1, 1989 with  respect to office and  garage  located  at 2 Selleck  Street,  Stamford,
         Connecticut.(2)

10.24 -- Lease  dated  April 28,  1992 with  respect to office and garage  located  at  8087-8107  Parston  Drive,
         Forestville, Maryland.(1)

10.25 -- Option  dated  October 18, 1984  granted to Irik P. Sevin to purchase  64,000  shares of common  stock of
         Petroleum Heat and Power Co., Inc.(3)

10.26 -- Agreement  dated  October 22, 1986  relating to purchase of 64,000 shares of Class A Common Stock by Irik
         P. Sevin.(5)

10.27 -- Agreement dated December 2, 1986 relating to stock options granted to Irik P. Sevin.(5)

10.28 -- Agreements  dated December 28, 1987 and March 6, 1989 relating to stock options  granted to Irik P. Sevin
         and Malvin P. Sevin.(2)

10.29 -- Form of Note dated  December 31, 1992, in the amount of $1,499,378,  due December 31, 1993,  from Irik P.
         Sevin to the Company.(1)

10.30 -- Subordinated  Note  Agreement  relating to $60 million  Subordinated  Notes due October 1, 1998 issued to
         John Hancock Mutual Life Insurance Company and other Investors.(2)

10.31 -- Note Agreement,  dated as of January 15, 1991,  relating to $12.5 million  Subordinated Notes due January
         15, 2001, between the Company and Connecticut General Life Insurance Company.(2)

10.32 -- Purchase  Agreement,  dated as of August 1, 1989,  between  the  Company  and John  Hancock  Mutual  Life
         Insurance  Company and The Northwestern  Mutual Life Insurance  Company,  relating to the purchase of the
         1989 Preferred Stock.(2)

10.33 -- Agreement dated as of November 1, 1992 relating to stock options granted to George Leibowitz.(1)

10.34 -- Letter Agreement dated March 15, 1993 relating to the Credit Agreement.(1)

10.35 -- Lease dated June 17, 1993 with respect to office facilities  located at 2187 Atlantic Street in Stamford,
         Connecticut. (8)

10.36 -- Form of Note dated  December 31, 1993, in the amount of $1,559,827,  due December 31, 1994,  from Irik P.
         Sevin to the Company.(8)

10.37 -- Purchase Agreement,  dated as of December 21, 1993, among Star Gas Holdings,  Inc., First Reserve Secured
         Energy Assets Fund, L.P.,  American Gas & Oil Investors,  AmGo II, AmGo III, FRC Star Gas, Inc., Star Gas
         and the Company.(9)

10.38 -- Option from Star Gas to the Company, dated as of December 21, 1993.(9)

10.39 -- Shareholder  Put/Call  Agreement,  dated as of December 21, 1993, among the Company,  the Other Investors
         and Prudential.(9)

10.40 -- Shareholders'  Agreement,  dated as of December 21,  1993,  among the Company,  the Other  Investors  and
         Prudential.(9)
</TABLE>


<PAGE>


                                    Exhibit Index
                                    -------------

EXHIBIT 
NO.                                 EXHIBIT 
-------                             -------


<TABLE>
<S>      <C>
10.41 -- Management Services Agreement, dated as of December 21, 1993, between the Company and Star Gas.(9)

10.42 -- First Amendment to the Company's 10_% Subordinated Notes Indenture dated as of January 12, 1994.(8)

10.43 -- Form of Third Amendment to the Connecticut General Note Agreement.(8)

10.44 -- Form of Second Amendment to the Hancock Note Agreement.(8)

10.45 -- Form of First Amendment to the Hancock/Northwestern Purchase Agreement.(8)
10.46 -- Form of Fourth Amendment dated January 21, 1994 to the Second Amended and Restated Credit Agreement.(8)

10.47 -- Employment Agreement dated July 21, 1994 with Thomas Isola.(10)

10.48 -- Agreement entered into as of the 7th day of December,  1994 among the Company,  Pru Supply,  Inc. and the
         Prudential Insurance Company of America.(2)

10.49 -- Agreement dated April 4, 1994 relating to stock options granted to Irik P. Sevin.(11)

10.50 -- Note dated  December 31, 1994,  in the amount of  $1,640,060  due December 31, 1995 from Irik P. Sevin to
         the Company.(11)

10.51 -- Employment Agreement dated June 2, 1994 with Alex Szabo (12)

10.52 -- Agreement dated December 31, 1995, in the amount of $1,751,468 due December 31, 1999
         from Irik P. Sevin to the Company (13)

11.0  -- Computation of Per Share Earnings.(13)

21.0  -- Subsidiaries of Registrant.(13)

23.0  -- Consent of KPMG Peat Marwick LLP (13)

27.0  -- Financial Date Schedule (13)



 (1)   Filed as Exhibits to Registration Statement on Form S-2, File No. 33-58034.

 (2)   Filed as Exhibits to Registration Statement on Form S-1, File No. 33-48051, and incorporated herein by reference.

 (3)   Filed as Exhibits to Registration Statement on Form S-1, File No. 2-99794, and incorporated herein by reference.

 (4)   Filed as Exhibits to Registration Statement on Form S-1, File No. 2-88526, and incorporated herein by reference.

 (5)   Filed as Exhibits to Registration Statement on Form S-1, File No. 33-9088, and incorporated herein by reference.

 (6)   Filed as Exhibits to the Company's Annual Report on Form 10-K for the year ended December 31, 1991, File No.
       2-88526, and incorporated herein by reference.

 (7)   Filed as Exhibits to the Company's Annual Report on Form 10-K for the year ended December 31, 1988, File No.
       2-88526, and incorporated herein by reference.

 (8)   Filed as Exhibits to the Registration Statement on Form S-2, File No. 33-72354, and incorporated herein by
       reference.

 (9)   Filed as Exhibits to the Company's Periodic Report on Form 8-K filed on January 4, 1994, File No. 2-88526 and
       incorporated herein by reference.

(10)   Filed as an Exhibit to the Company's Periodic Report on Form 10-Q for the
       quarter ended September 1994 and incorporated herein by reference.

(11)   Filed as Exhibits to the Registration Statement on Form S-2, File
       No.33-57059, and incorporated herein by reference.

(12)   Filed as an Exhibit to the Company's Annual Report on Form 10-K for the
       year ended December 31, 1994, File No. 2- 88526, and incorporated herein by
       reference.

(13)   Filed herein.
</TABLE>