SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K
(Mark One)

[X]               ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
          OF THE SECURITIES AND EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
                   For the fiscal year ended December 31, 1999

                                       OR

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

                         Commission file number 1-10311

                         KANEB PIPE LINE PARTNERS, L.P.
             (Exact name of Registrant as specified in its Charter)

            Delaware                                        75-2287571
  (State or other jurisdiction of                         (IRS Employer
  incorporation  or  organization)                      Identification No.)

  2435 North Central Expressway
  Richardson, Texas                                            75080
 (Address of principal executive offices)                   (zip code)

       Registrant's telephone number, including area code: (972) 699-4000

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

                                                      Name of each exchange
     Title of each class                               on which registered
           Units                                      New York Stock Exchange

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

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

         Indicate by check mark if disclosure of delinquent  filers  pursuant to
Item 405 of Regulation S-K (Subsection 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.[ ]

         Aggregate  market value of the voting Units held by  non-affiliates  of
the registrant:  $319,780,520. This figure is estimated as of March 15, 2000, at
which date the  closing  price of the  Registrant's  Units on the New York Stock
Exchange was $24.9375 per Unit and assumes that only the General  Partner of the
Registrant  (the  "General  Partner"),  officers  and  directors  of the General
Partner and its parent and wholly owned  subsidiaries of the General Partner and
its parent were affiliates.

Number of Units of the Registrant outstanding at March 15, 2000:   18,310,000


<PAGE>
                                     PART I

Item I.    Business


General

         Kaneb Pipe Line Partners,  L.P., a Delaware  limited  partnership  (the
"Partnership"),  is engaged in the refined petroleum  products pipeline business
and the  terminaling  of petroleum  products and  specialty  liquids.  Formed in
September  1989 to acquire,  own and operate the pipeline  system and operations
that had been  previously  conducted  by Kaneb  Pipe Line  Company,  a  Delaware
corporation  ("KPL"  or the  "Company"),  since  1953,  KPL owns a  combined  2%
interest as general  partner of the Partnership and of Kaneb Pipe Line Operating
Partnership,  L.P., a Delaware limited partnership  ("KPOP").  The Partnership's
pipeline  operations are conducted through KPOP, of which the Partnership is the
sole  limited  partner  and KPL is the sole  general  partner.  The  terminaling
business of the  Partnership is conducted  through Support  Terminals  Operating
Partnership,  L.P.  ("STOP"),  and its  affiliated  partnerships  and  corporate
entities,  which operate  under the trade names "ST  Services" and  "StanTrans,"
among others. KPOP and STOP are, collectively with their subsidiaries,  referred
to as the "Operating  Partnerships."  KPL is a wholly-owned  subsidiary of Kaneb
Services, Inc., a Delaware corporation ("Kaneb") (NYSE: KAB).


Products Pipeline Business

         Introduction

         The  Partnership's   pipeline   business  consists   primarily  of  the
transportation  of refined  petroleum  products  as a common  carrier in Kansas,
Nebraska,   Iowa,  South  Dakota,  North  Dakota,   Colorado  and  Wyoming.  The
Partnership  owns and operates two common carrier  pipelines  (the  "Pipelines")
described below.

         East Pipeline

         Construction  of the East  Pipeline  commenced in the 1950s with a line
from southern Kansas to Geneva,  Nebraska.  During the 1960s,  the East Pipeline
was extended north to its present  terminus at Jamestown,  North Dakota.  In the
1980's, the 8" line from Geneva,  Nebraska to North Platte, Nebraska and the 16"
line from McPherson,  Kansas to Geneva,  Nebraska were built and the Partnership
acquired a 6" pipeline from Champlin Oil Company,  a portion of which originally
ran  south  from  Geneva,   Nebraska  through  Windom,   Kansas  terminating  in
Hutchinson,  Kansas. In 1997, the Partnership completed construction of a new 6"
pipeline from Conway,  Kansas to Windom, Kansas (approximately 22 miles north of
Hutchinson)  that allows the  Hutchinson  terminal to be supplied  directly from
McPherson;  a significantly  shorter route than was previously used. As a result
of this pipeline becoming operational, a 158 mile segment of the former Champlin
line was shut down,  including a terminal  located at  Superior,  Nebraska.  The
other end of the line runs northeast  approximately 175 miles, crossing the main
pipeline  near  Osceola,  Nebraska,  continuing  through a terminal at Columbus,
Nebraska, and later interconnecting with the Partnership's  Yankton/Milford line
to terminate at Rock Rapids,  Iowa. In December  1998,  KPOP acquired from Amoco
Oil Company a 175 mile  pipeline  that runs from Council  Bluffs,  Iowa to Sioux
Falls,  South Dakota and the terminal at Sioux Falls. On December 31, 1998 KPOP,
pursuant  to  its  option,   purchased  the  203  mile  North  Platte  line  for
approximately  $5 million at the end of a lease.  In January  1999, a connection
was  completed  to  service  the  Sioux  Falls  terminal  through  the main East
Pipeline.

         The East  Pipeline  system  also  consists of 16 product  terminals  in
Kansas,  Nebraska,  Iowa,  South  Dakota and North  Dakota  with  total  storage
capacity of approximately 3.5 million barrels and an additional 22 product tanks
with total storage capacity of approximately  1,006,000 barrels at its tank farm
installations at McPherson and El Dorado, Kansas. The system also has six origin
pump  stations in Kansas and 38 booster  pump  stations  throughout  the system.
Additionally,  the system maintains various office and warehouse facilities, and
an extensive  quality control  laboratory.  KPOP owns the entire 2,090 mile East
Pipeline.  KPOP leases office space for its operating  headquarters  in Wichita,
Kansas.

         The East Pipeline  transports  refined  petroleum  products,  including
propane,  received  from  refineries  in southeast  Kansas and other  connecting
pipelines  to  its  terminals  along  the  system  and  to  receiving   pipeline
connections in Kansas.  Shippers on the East Pipeline  obtain refined  petroleum
products  from  refineries  connected  to the East  Pipeline  or  through  other
pipelines directly connected to the pipeline system.  Five connecting  pipelines
can deliver  propane for shipment  through the East Pipeline from gas processing
plants in Texas, New Mexico, Oklahoma and Kansas.

         West Pipeline

         KPOP  acquired  the West  Pipeline in February  1995,  through an asset
purchase  from Wyco Pipe Line  Company  for a purchase  price of $27.1  million,
increasing the Partnership's  pipeline business in South Dakota and expanding it
into Wyoming and Colorado.  The West Pipeline system includes  approximately 550
miles of pipeline in Wyoming,  Colorado  and South  Dakota,  four truck  loading
terminals  and numerous pump stations  situated  along the system.  The system's
four  product  terminals  have a total  storage  capacity  of over  1.7  million
barrels.

         The West Pipeline originates at Casper, Wyoming and travels east to the
Strouds Station,  where it serves as a connecting  point with Sinclair's  Little
America Refinery and the Seminoe Pipeline that transports product from Billings,
Montana-area  refineries.  From Strouds,  the West Pipeline  continues  easterly
through its 8" line to Douglas,  Wyoming,  where a 6" pipeline  branches  off to
serve the  Partnership's  Rapid City,  South Dakota terminal  approximately  190
miles away. The Rapid City terminal has a three bay,  bottom-loading  truck rack
and storage tank  capacity of 256,000  barrels.  The 6" pipeline  also  receives
product  from  Wyoming  Refining's  pipeline at a  connection  located  near the
Wyoming/South Dakota border,  approximately 30 miles south of Wyoming Refining's
Newcastle,  Wyoming  Refinery.  From  Douglas,  the  Partnership's  8"  pipeline
continues southward through a delivery point at the Burlington Northern junction
to the  terminal at  Cheyenne,  Wyoming.  The  Cheyenne  terminal has a two bay,
bottom-loading  truck rack,  storage tank capacity of 345,000 barrels and serves
as a receiving  point for  products  from the  Frontier  Oil & Refining  Company
refinery at Cheyenne,  as well as a product delivery point to Conoco's  Cheyenne
Pipeline.  From the  Cheyenne  terminal,  the 8"  pipeline  extends  south  into
Colorado to the Dupont  Terminal  located in the Denver  metropolitan  area. The
Dupont Terminal is the largest terminal on the West Pipeline system,  with a six
bay,  bottom-loading  truck rack and tankage capacity of 692,000 barrels. The 8"
pipeline  continues to the Commerce  City  Station,  where the West Pipeline can
receive from and transfer  product to the Ultramar  Diamond  Shamrock and Conoco
refineries and the Phillips  Petroleum  Terminal.  From Commerce City, a 6" line
continues south 90 miles where the system  terminates at the Fountain,  Colorado
Terminal  serving the Colorado  Springs area.  The Fountain  Terminal has a five
bay, bottom-loading truck rack and storage tank capacity of 366,000 barrels.

         The West Pipeline system parallels the  Partnership's  East Pipeline to
the west. The East Pipeline's North Platte line terminates in western  Nebraska,
approximately 200 miles east of the West Pipeline's Cheyenne,  Wyoming Terminal.
Conoco's  Cheyenne Pipeline runs from west to east from the Cheyenne Terminal to
near the East Pipeline's North Platte  Terminal,  although a portion of the line
from Sidney,  Nebraska  (approximately  100 miles from Cheyenne) to North Platte
has been deactivated. The West Pipeline serves Denver and other eastern Colorado
markets and supplies jet fuel to Ellsworth  Air Force Base at Rapid City,  South
Dakota, as compared to the East Pipeline's  largely  agricultural  service area.
The West  Pipeline has a relatively  small number of shippers,  who,  with a few
exceptions, are also shippers on the Partnership's East Pipeline system.

         Other Systems

         The  Partnership  also owns three  single-use  pipelines,  located near
Umatilla, Oregon; Rawlins, Wyoming and Pasco, Washington, each of which supplies
diesel fuel to a railroad fueling facility.  The Oregon and Washington lines are
fully automated,  however the Wyoming line requires minimal start-up assistance,
which is provided by railroad  personnel.  For the year ended December 31, 1999,
these three  systems  combined  transported  a total of 3.7  million  barrels of
diesel fuel, representing an aggregate of $1.5 million in revenues.


         Pipelines Products and Activities

         The Pipelines' revenues are based upon volumes and distances of product
shipped.  The  following  table  reflects  the total  volume and barrel miles of
refined  petroleum  products shipped and total operating  revenues earned by the
Pipelines for each of the periods indicated:

                                           Year Ended December 31,
                            ----------------------------------------------------
                              1999       1998       1997       1996       1995
                            --------   --------   --------   --------   --------
     Volume (1)..........    85,356     77,965     69,984     73,839     74,965
     Barrel miles (2)....    18,440     17,007     16,144     16,735     16,594
     Revenues (3)........   $67,607    $63,421    $61,320    $63,441    $60,192

(1)      Volumes are  expressed  in  thousands  of barrels of refined  petroleum
         product.
(2)      Barrel  miles are shown in  millions.  A barrel mile is the movement of
         one barrel of refined petroleum product one mile.
(3)      Revenues are expressed in thousands of dollars.

<PAGE>
         The following  table sets forth volumes of propane and various types of
other refined petroleum products transported by the Pipelines during each of the
periods indicated:

                                           Year Ended December 31,
                                           (Thousands of Barrels)
                            ----------------------------------------------------
                              1999       1998       1997       1996       1995
                            --------   --------   --------   --------   --------
     Gasoline............     41,472     37,983     32,237     36,063     37,348
     Diesel and fuel oil.     40,435     36,237     33,541     32,934     33,411
     Propane.............      3,449      3,745      4,206      4,842      4,146
     Other...............       -          -          -          -            60
                            --------   --------   --------   --------   --------
          Total..........     85,356     77,965     69,984     73,839     74,965
                            ========   ========   ========   ========   ========

         Diesel  and  fuel  oil  are  used  in  farm  machinery  and  equipment,
over-the-road  transportation,   railroad  fueling  and  residential  fuel  oil.
Gasoline is primarily used in over-the-road  transportation  and propane is used
for crop drying,  residential heating and to power irrigation equipment. The mix
of refined petroleum products delivered varies seasonally,  with gasoline demand
peaking in early summer,  diesel fuel demand  peaking in late summer and propane
demand higher in the fall. In addition,  weather  conditions in the areas served
by the East  Pipeline  affect  both the  demand  for and the mix of the  refined
petroleum  products delivered through the East Pipeline,  although  historically
any overall  impact on the total volumes  shipped has been  short-term.  Tariffs
charged to shippers for  transportation of products do not vary according to the
type of product delivered.

         Maintenance and Monitoring

         The  Pipelines  have been  constructed  and are  maintained in a manner
consistent  with  applicable  Federal,  state  and local  laws and  regulations,
standards  prescribed by the American Petroleum  Institute and accepted industry
practice.   Further,  protective  measures  are  taken  and  routine  preventive
maintenance is performed on the Pipelines,  in order to prolong the useful lives
of the Pipelines. Such measures includes cathodic protection to prevent external
corrosion,  inhibitors to prevent internal corrosion and periodic  inspection of
the Pipelines. Additionally, the Pipelines are patrolled at regular intervals to
identify equipment or activities by third parties that, if left unchecked, could
result in encroachment upon the Pipeline's  rights-of-way and possible damage to
the Pipelines.

         The Partnership uses a  state-of-the-art  Supervisory  Control and Data
Acquisition remote supervisory control software program to continuously  monitor
and control the  Pipelines  from the Wichita,  Kansas  headquarters.  The system
monitors  quantities  of refined  petroleum  products  injected in and delivered
through  the  Pipelines  and  automatically  signals  the  Wichita  headquarters
personnel upon deviations from normal operations that requires attention.


         Pipeline Operations

         Both the East Pipeline and the West Pipeline are  interstate  pipelines
and thus  subject to Federal  regulation  by such  governmental  agencies as the
Federal Energy Regulatory Commission ("FERC"), the Department of Transportation,
and the  Environmental  Protection  Agency.  Additionally,  the West Pipeline is
subject to state regulation of certain  intrastate rates in Colorado and Wyoming
and  the  East  Pipeline  is  subject  to  state   regulation  in  Kansas.   See
"Regulation."

         Except  for  the  three   single-use   pipelines  and  certain  ethanol
facilities,  all of the  Partnership's  pipeline  operations  constitute  common
carrier  operations and are subject to Federal tariff  regulation.  In May 1998,
KPOP was  authorized by the FERC to adopt  market-based  rates in  approximately
one-half  of its  markets.  Also,  certain  of  its  intrastate  common  carrier
operations are subject to state tariff regulation. Common carrier activities are
those under which transportation through the Pipelines is available at published
tariffs  filed,  in the case of interstate  shipments,  with the FERC, or in the
case of intrastate shipments in Kansas,  Colorado and Wyoming, with the relevant
state authority,  to any shipper of refined petroleum products who requests such
services and satisfies the conditions and specifications for transportation.

         In general,  a shipper on one of the Pipelines delivers products to the
pipeline from refineries or third party pipelines that connect to the Pipelines.
The Pipelines'  operations also include 20 truck loading terminals through which
refined  petroleum  products are delivered to storage tanks and then loaded into
petroleum  transport trucks.  Five of the 20 terminals also receive propane into
storage tanks and then load it into transport trucks Tariffs for  transportation
are charged to shippers based upon  transportation from the origination point on
the  pipeline to the point of delivery.  Such  tariffs also include  charges for
terminaling  and storage of product at the Pipeline's  terminals.  Pipelines are
generally  the  lowest  cost  method for  intermediate  and  long-haul  overland
transportation of refined petroleum products.

         Each shipper  transporting  product on a pipeline is required to supply
KPOP with a notice of shipment  indicating sources of products and destinations.
All shipments are tested or receive refinery certifications to ensure compliance
with KPOP's specifications.  Shippers are generally invoiced by KPOP immediately
upon the product entering one of the Pipelines.


         The  following  table  shows the number of tanks  owned by KPOP at each
terminal  location  at  December  31, 1999  (except as  indicated),  the storage
capacity in barrels and truck capacity of each terminal location.

             Location of          Number       Tankage           Truck
              Terminals          of Tanks     Capacity         Capacity(a)
          -----------------      --------     ---------        -----------
          Colorado:
                Dupont              18         692,000               6
                Fountain            13         366,000               5
          Iowa:
                LeMars               9         103,000               2
                Milford(b)          11         172,000               2
                Rock Rapids         12         366,000               2
          Kansas:
                Concordia(c)         7          79,000               2
                Hutchinson           9         162,000               1
          Nebraska:
                Columbus(d)         12         191,000               2
                Geneva              39         678,000               8
                Norfolk             16         187,000               4
                North Platte        22         198,000               5
                Osceola              8          79,000               2
          North Dakota:
                Jamestown           13         188,000               2
          South Dakota:
                Aberdeen            12         181,000               2
                Mitchell             8          72,000               2
                Rapid City          13         256,000               3
                Sioux Falls          9         394,000               2
                Wolsey              21         149,000               4
                Yankton             25         246,000               4
          Wyoming:
                Cheyenne            15         345,000               2
                                 -----       ---------
          Totals                   292       5,104,000
                                 =====       =========

(a)      Number of trucks that may be simultaneously loaded.
(b)      This terminal is situated on land leased  through  August 7, 2007 at an
         annual rental of $2,400. KPOP has the right to renew the lease upon its
         expiration for an additional term of 20 years at the same annual rental
         rate.
(c)      This  terminal is  situated on land leased  through the year 2060 for a
         total rental of $2,000.
(d)      Also loads rail tank cars.

         The East Pipeline also has intermediate  storage facilities  consisting
of 12 storage  tanks at El Dorado,  Kansas  and 10 storage  tanks at  McPherson,
Kansas, with aggregate capacities of approximately  472,000 and 534,000 barrels,
respectively.  During 1999,  approximately  53.3% and 92.2% of the deliveries of
the East Pipeline and the West Pipeline,  respectively,  were made through their
terminals,  and the  remainder of the  respective  deliveries of such lines were
made to other pipelines and customer owned storage tanks.

         Storage of product at terminals  pending  delivery is considered by the
Partnership  to be an  integral  part of the  product  delivery  service  of the
Pipelines. Shippers generally store refined petroleum products for less than one
week. Ancillary services,  including injection of shipper-furnished  and generic
additives, are available at each terminal.


          Demand for and Sources of Refined Petroleum Products

         The  Partnership's  pipeline  business depends in large part on (i) the
level of demand for refined  petroleum  products  in the  markets  served by the
Pipelines and (ii) the ability and willingness of refiners and marketers  having
access  to the  Pipelines  to  supply  such  demand by  deliveries  through  the
Pipelines.

         Most of the  refined  petroleum  products  delivered  through  the East
Pipeline  are  ultimately   used  as  fuel  for  railroads  or  in  agricultural
operations,  including fuel for farm equipment,  irrigation systems, trucks used
for transporting crops and crop drying facilities.  Demand for refined petroleum
products for  agricultural  use, and the relative mix of products  required,  is
affected by weather  conditions in the markets served by the East Pipeline.  The
agricultural  sector is also  affected by government  agricultural  policies and
crop prices.  Although periods of drought suppress  agricultural demand for some
refined petroleum products,  particularly those used for fueling farm equipment,
the demand for fuel for irrigation systems often increases during such times.

         While  there is some  agricultural  demand  for the  refined  petroleum
products  delivered  through the West  Pipeline,  as well as  military  jet fuel
volumes, most of the demand is centered in the Denver and Colorado Springs area.
Because demand on the West Pipeline is  significantly  weighted toward urban and
suburban  areas,  the product mix on the West Pipeline  includes a substantially
higher percentage of gasoline than the product mix on the East Pipeline.

         The Pipelines are also dependent upon adequate  levels of production of
refined petroleum products by refineries connected to the Pipelines, directly or
through  connecting  pipelines.  The  refineries  are, in turn,  dependent  upon
adequate  supplies of suitable  grades of crude oil.  The  refineries  connected
directly to the East Pipeline  obtain crude oil from  producing  fields  located
primarily in Kansas,  Oklahoma  and Texas,  and, to a much lesser  extent,  from
other domestic or foreign sources.  Refineries in Kansas, Oklahoma and Texas are
connected to the East Pipeline through other pipelines.  These refineries obtain
their supplies of crude oil from a variety of sources.  The refineries connected
directly to the West  Pipeline are located in Casper and  Cheyenne,  Wyoming and
Denver,  Colorado.  Refineries in Billings and Laurel,  Montana are connected to
the West  Pipeline  through  other  pipelines.  These  refineries  obtain  their
supplies of crude oil primarily  from Rocky Mountain  sources.  If operations at
any one refinery were discontinued, the Partnership believes (assuming unchanged
demand for refined  petroleum  products in markets served by the Pipelines) that
the  effects  thereof  would be  short-term  in  nature,  and the  Partnership's
business would not be materially  adversely  affected over the long term because
such  discontinued  production could be replaced by other refineries or by other
sources.

         The majority of the refined petroleum product  transported  through the
East Pipeline in 1999 was produced at three refineries  located at McPherson and
El Dorado, Kansas and Ponca City, Oklahoma, and operated by Cooperative Refining
Association ("CRA"),  Frontier Refining and Conoco, Inc.  respectively.  The CRA
and Frontier  Refining  refineries are connected  directly to the East Pipeline.
The McPherson,  Kansas refinery operated by CRA, accounted for approximately 31%
of the total amount of product  shipped over the East Pipeline in 1999. The East
Pipeline  also  has  direct  access  by  third  party  pipelines  to four  other
refineries in Kansas,  Oklahoma and Texas and to Gulf Coast supplies of products
through connecting pipelines that receive products from pipelines originating on
the  Gulf  Coast.  Five  connecting  pipelines  can  deliver  propane  from  gas
processing plants in Texas, New Mexico, Oklahoma and Kansas to the East Pipeline
for shipment.

         The majority of the refined petroleum products  transported through the
West Pipeline is produced at the Frontier Refinery located at Cheyenne, Wyoming,
the Ultramar Diamond Shamrock and Conoco Refineries located at Denver, Colorado,
and Sinclair's Little America Refinery located at Casper,  Wyoming, all of which
are connected  directly to the West Pipeline.  The West Pipeline also has access
to three Billings, Montana, area refineries through a connecting pipeline.

          Principal Customers

         KPOP had a total of  approximately  47 shippers in 1999.  The principal
shippers include four integrated oil companies,  three refining  companies,  two
large farm cooperatives and one railroad.  Transportation  revenues attributable
to the top 10 shippers of the Pipelines  were $42.7  million,  $48.3 million and
$43.8 million,  which  accounted for 63%, 76% and 74% of total revenues  shipped
for each of the years 1999, 1998 and 1997, respectively.

         Competition and Business Considerations

         The East  Pipeline's  major  competitor  is an  independent,  regulated
common  carrier   pipeline  system  owned  by  The  Williams   Companies,   Inc.
("Williams")  that operates  approximately 100 miles east of and parallel to the
East Pipeline. The Williams system is a substantially more extensive system than
the East Pipeline.  Furthermore,  Williams and its  affiliates  have capital and
financial   resources  that  are   substantially   greater  than  those  of  the
Partnership.  Competition  with  Williams is based  primarily on  transportation
charges,  quality of  customer  service  and  proximity  to end users,  although
refined product pricing at either the origin or terminal point on a pipeline may
outweigh  transportation  costs.  Fifteen  of the East  Pipeline's  16  delivery
terminals are located within 2 to 145 miles of, and in direct  competition  with
Williams' terminals.

         The West Pipeline competes with the truck loading racks of the Cheyenne
and Denver refineries and the Denver terminals of the Chase Terminal Company and
Phillips  Petroleum  Company.  Ultramar Diamond Shamrock terminals in Denver and
Colorado  Springs,  connected to a Ultramar Diamond Shamrock pipeline from their
Texas Panhandle  Refinery,  are major  competitors to the West Pipeline's Denver
and Fountain Terminals, respectively.

         Because pipelines are generally the lowest cost method for intermediate
and  long-haul  movement of refined  petroleum  products,  the  Pipelines'  more
significant  competitors are common carrier and proprietary  pipelines owned and
operated by major  integrated  and large  independent  oil  companies  and other
companies in the areas where the Pipelines deliver products. Competition between
common carrier pipelines is based primarily on transportation  charges,  quality
of customer  service and proximity to end users.  The Partnership  believes high
capital costs, tariff regulation,  environmental  considerations and problems in
acquiring  rights-of-way  make it unlikely that other competing pipeline systems
comparable in size and scope to the Pipelines  will be built in the near future,
provided the Pipelines have available capacity to satisfy demand and its tariffs
remain at reasonable levels.

         The costs associated with transporting products from a loading terminal
to end  users  limit  the  geographic  size of the  market  that  can be  served
economically  by any  terminal.  Transportation  to end users  from the  loading
terminals of the Partnership is conducted  principally by trucking operations of
unrelated third parties.  Trucks may  competitively  deliver products in some of
the areas served by the Pipelines.  However,  trucking costs render that mode of
transportation  not  competitive  for  longer  hauls  or  larger  volumes.   The
Partnership does not believe that trucks are, or will be, effective  competition
to its long-haul volumes over the long term.

Liquids Terminaling

         Introduction

         The Partnership's  Support Terminal Services operation ("ST") is one of
the largest  independent  petroleum  products and specialty liquids  terminaling
companies  in the United  States.  For the year ended  December  31,  1999,  the
Partnership's  terminaling  business  accounted  for  approximately  57%  of the
Partnership's revenues. As of December 31, 1999, ST operated 34 facilities in 19
states  and  the  District  of  Columbia,  with  a  total  storage  capacity  of
approximately 23.4 million barrels.  In addition,  in February 1999, ST made its
first significant international acquisition,  with the purchase of six terminals
located in the United  Kingdom,  having a total  capacity of  approximately  5.4
million barrels.  ST and its predecessors have been in the terminaling  business
for over 40 years and handle a wide variety of liquids from  petroleum  products
to specialty chemicals to edible liquids.

         ST's terminal  facilities  provide storage on a fee basis for petroleum
products,  specialty  chemicals and other  liquids.  ST's five largest  domestic
terminal  facilities are located in Piney Point,  Maryland;  Linden,  New Jersey
(50% owned  joint  venture);  Jacksonville,  Florida;  Texas City,  Texas;  and,
Philadelphia,  Pennsylvania.  Excluding  the  Philadelphia  facility,  which was
acquired  by ST  in  September  1999  (see:  "Description  of  Largest  Terminal
Facilities"),  these facilities accounted for approximately 41% of ST's revenues
and 49.9% of its tankage capacity in 1999.

         Description of Largest Domestic Terminal Facilities

         Piney Point,  Maryland.  The largest terminal  currently owned by ST is
located on  approximately  400 acres on the  Potomac  River.  The  facility  was
acquired as part of the  purchase of the liquids  terminaling  assets of Steuart
Petroleum  Company and certain of its  affiliates  (collectively  "Steuart")  in
December 1995. The Piney Point terminal has approximately 5.4 million barrels of
storage  capacity  in 28  tanks  and is  the  closest  deep  water  facility  to
Washington,  D.C. This terminal competes with other large petroleum terminals in
the East Coast  water-borne  market  extending  from New York Harbor to Norfolk,
Virginia. The terminal currently stores petroleum products, consisting primarily
of fuel oils, asphalt and caustic soda solution.  The terminal has a dock with a
36-foot draft for tankers and four berths for barges.  It also has truck loading
facilities,  product blending  capabilities and is connected to a pipeline which
supplies residual fuel oil to two power generating stations.

         Linden,  New Jersey.  In October  1998, ST entered into a joint venture
relationship  with Northville  Industries  Corp.  ("Northville")  to acquire the
management of and a 50% ownership  interest in the terminal  facility at Linden,
New  Jersey  that was  previously  owned  by  Northville.  The 44 acre  facility
provides  ST with  deep-water  terminaling  capabilities  at New York Harbor and
primarily stores petroleum products, including gasoline, jet fuel and fuel oils.
The facility has a total  capacity of  approximately  3.9 million  barrels in 22
tanks, can receive products via ship, barge and pipeline and delivers product by
ship, barge, pipeline and truck. The terminal has two docks (and leases a third)
with draft limits of 35 and 24 feet, respectively.

         Jacksonville, Florida. The Jacksonville terminal, also acquired as part
of the  Steuart  transaction,  is located on  approximately  86 acres on the St.
John's  River and  consists of a main  terminal  and two annexes  with  combined
storage capacity of approximately  2.1 million barrels in 30 tanks. The terminal
is currently used to store petroleum products including gasoline, No. 2 oil, No.
6 oil,  diesel and  kerosene.  This  terminal  has a tanker berth with a 38-foot
draft  and  four  barge  berths  and also  offers  truck  and  rail car  loading
facilities and facilities to blend residual fuels for ship bunkering.

         Texas City,  Texas.  The Texas City facility is situated on 39 acres of
land  leased  from the  Texas  City  Terminal  Railway  Company  ("TCTRC")  with
long-term  renewal  options.  Located  on  Galveston  Bay near the  mouth of the
Houston Ship Channel,  approximately  sixteen  miles from open water,  the Texas
City terminal  consists of 124 tanks with a total  capacity of  approximately  2
million  barrels.  The  eastern  end of the Texas City site is adjacent to three
deep-water  docking  facilities,  which  are also  owned  by  TCTRC.  The  three
deep-water  docks include two 36-foot draft docks and a 40-foot draft dock.  The
docking  facilities can  accommodate any ship or barge capable of navigating the
40-foot  draft of the Houston Ship Channel.  ST is charged  dockage and wharfage
fees on a per vessel and per unit basis, respectively, by TCTRC, which it passes
on to its customers.

         The Texas City facility is designed to  accommodate  a diverse  product
mix,  including  specialty  chemicals,  such as  petrochemicals  and  has  tanks
equipped for the specific storage needs of the various products handled;  piping
and  pumping  equipment  for  moving  the  product  between  the  tanks  and the
transportation modes; and, an extensive  infrastructure of support equipment. ST
receives or delivers the majority of the specialty chemicals that it handles via
ship or barge at Texas City. ST also receives and delivers liquids via rail tank
cars and transport  trucks and has direct pipeline  connections to refineries in
Texas City.

         ST's facility has been designed with engineered  structural measures to
minimize the  possibility of the occurrence and the level of damage in the event
of a spill or fire.  All  loading  areas,  tanks,  pipes and  pumping  areas are
"contained" to collect any spillage and insure that only properly  treated water
is discharged from the site.

         Philadelphia,  Pennsylvania.  The Philadelphia  facility is situated on
approximately 12 acres on the Schuylkill  River near Interstate  Highways 76 and
95. The dock at the  facility  is capable of  receiving  oceangoing  tankers and
barges and is equipped to clean barges for changing the petroleum  products they
handle or to prepare the barges to enter a shipyard  for  maintenance  work.  In
addition  to the  capability  to receive  and  deliver  products  by water,  the
terminal can receive product from truck, Sun Pipeline and Colonial  Pipeline and
deliver it to trucks and Sun Pipeline.  Currently the facilities handle asphalt,
No. 6 fuel oil, heating oil, diesel fuel and gasolines.

         Other  Terminal  Sites.  In  addition  to  the  five  major  facilities
described  above,  ST has 29 other terminal  facilities  located  throughout the
United States,  and, as a result of a February 1999 transaction,  six facilities
in the United Kingdom.  In addition to the Philadelphia  facility,  a Salisbury,
Maryland  terminal was acquired during 1999.  During 1999, due to the closure of
the pipeline  serving the terminal,  ST closed and disposed of all of the assets
except land and buildings at its Farragut  Street  Terminal in Washington,  D.C.
The 29 facilities represented approximately 31.4% of ST's total tankage capacity
and approximately 34.9% of its total revenue for 1999. With the exception of the
facilities in Columbus,  Georgia,  which handles aviation gasoline and specialty
chemicals;  Winona,  Minnesota,  which handles  nitrogen  fertilizer  solutions;
Savannah,   Georgia,  which  handles  chemicals  and  caustic  solutions;   and,
Vancouver,  Washington,  which  handles  chemicals  and bulk  fertilizer,  these
facilities  primarily  store  petroleum  products  for a variety  of  customers.
Overall,  these  facilities  provide  ST with  diversity  geographically  and in
products handled and customers served.

         The following table outlines ST's terminal locations, capacities, tanks
and primary products handled:

                                 Tankage    No. of    Primary Products
        Facility                 Capacity   Tanks         Handled
     --------------------------  ---------  ------ ----------------------------
     Major Terminals:
     Piney Point, MD             5,403,000    28   Petroleum
     Linden, NJ(a)               3,884,000    22   Petroleum
     Jacksonville, FL            2,066,000    30   Petroleum
     Texas City, TX              2,002,000   124   Chemicals and Petrochemicals
     Philadelphia, PA            1,044,000    12   Petroleum

     Other Terminals:
     Montgomery, AL(b)             162,000     7   Petroleum, Jet Fuel
     Moundville, AL(b)             310,000     6   Jet Fuel
     Tuscon, AZ                    181,000     7   Petroleum
     Stockton, CA                  706,000    32   Petroleum
     M Street, DC                  133,000     3   Petroleum
     Homestead, FL(b)               72,000     2   Jet Fuel
     Augusta, GA                   110,000     8   Petroleum
     Bremen, GA                    180,000     8   Petroleum, Jet Fuel
     Brunswick, GA                 302,000     3   Petroleum, Pulp Liquor
     Columbus, GA                  180,000    25   Petroleum, Chemicals
     Macon, GA(b)                  307,000    10   Petroleum, Jet Fuel
     Savannah, GA                  861,000    19   Petroleum, Chemicals
     Blue Island, IL               752,000    19   Petroleum
     Chillicothe, IL               270,000     6   Petroleum
     Peru, IL                      221,000     8   Petroleum, Fertilizer
     Indianapolis, IN              410,000    18   Petroleum
     Westwego, LA                  858,000    54   Molasses, Fertilizer, Caustic
     Salina, KS                     98,000    10   Petroleum
     Andrews AFB Pipeline, MD(b)    72,000     3   Jet Fuel
     Baltimore, MD                 821,000    49   Chemicals, Asphalt, Jet Fuel
     Salisbury, MD                 177,000    14   Petroleum
     Winona, MN                    229,000     7   Fertilizer
     Alamogordo, NM(b)             120,000     5   Jet Fuel
     Drumright, OK                 315,000     4   Petroleum, Jet Fuel
     San Antonio, TX               207,000     4   Jet Fuel
     Dumfries, VA                  554,000    16   Petroleum, Asphalt
     Virginia Beach, VA(b)          40,000     2   Jet Fuel
     Vancouver, WA                  94,000    31   Chemicals, Fertilizer
     Milwaukee, WI                 308,000     7   Petroleum

     Foreign Terminals:
     Grays, England              1,945,000    53   Petroleum
     Eastham, England            2,185,000   162   Chemicals, Animal Fats
     Runcorn, England              146,000     4   Molten sulphur
     Glasgow, Scotland             344,000    16   Petroleum
     Leith, Scotland               459,000    34   Petroleum
     Belfast, Northern Ireland     315,000    38   Petroleum
                                ----------   ---
                                28,843,000   910
                                ==========   ===

(a)      The terminal is 50% owned by ST.
(b)      Facility  also  includes  pipelines to U.S.  government  military  base
         locations.


         Customers

         The  storage  and  transport  of jet fuel for the  U.S.  Department  of
Defense is an important part of ST's business. Eleven of ST's terminal sites are
involved in the  terminaling  or  transport  (via  pipeline) of jet fuel for the
Department  of Defense  and seven of the  eleven  locations  have been  utilized
solely by the U.S.  Government.  Two of these  locations are  presently  without
government  business.  Of the eleven  locations,  five include  pipelines  which
deliver jet fuel  directly to nearby  military  bases,  while  another  location
supplies  Andrews Air Force Base,  Maryland  and  consists of a barge  receiving
dock, an 11.3 mile pipeline,  three 24,000 barrel  double-bottomed  tanks and an
administration building located on the base.

          Competition and Business Considerations

         In addition to the terminals owned by independent  terminal  operators,
such as ST, many major  energy and chemical  companies  own  extensive  terminal
storage facilities.  Although such terminals often have the same capabilities as
terminals  owned  by  independent  operators,  they  generally  do  not  provide
terminaling  services to third  parties.  In many  instances,  major  energy and
chemical  companies  that  own  storage  and  terminaling  facilities  are  also
significant  customers  of  independent  terminal  operators,  such as ST.  Such
companies  typically  have  strong  demand for  terminals  owned by  independent
operators when independent terminals have more cost effective locations near key
transportation  links,  such as  deep-water  ports.  Major  energy and  chemical
companies  also need  independent  terminal  storage  when their  owned  storage
facilities are inadequate, either because of size constraints, the nature of the
stored material or specialized handling requirements.

         Independent  terminal  owners  generally  compete  on the  basis of the
location and  versatility of terminals,  service and price. A favorably  located
terminal will have access to various cost effective transportation modes both to
and  from  the  terminal.   Possible  transportation  modes  include  waterways,
railroads,  roadways  and  pipelines.  Terminals  located near  deep-water  port
facilities are referred to as "deep-water  terminals" and terminals without such
facilities are referred to as "inland terminals";  though some inland facilities
are served by barges on navigable rivers.

         Terminal  versatility is a function of the operator's  ability to offer
handling for diverse  products with complex handling  requirements.  The service
function typically  provided by the terminal  includes,  among other things, the
safe  storage  of the  product  at  specified  temperature,  moisture  and other
conditions,  as well as receipt at and delivery from the terminal,  all of which
must be in compliance  with  applicable  environmental  regulations.  A terminal
operator's  ability  to obtain  attractive  pricing  is often  dependent  on the
quality,  versatility  and reputation of the  facilities  owned by the operator.
Although many products  require modest terminal  modification,  operators with a
greater  diversity of terminals with versatile  storage  capabilities  typically
require less modification prior to usage,  ultimately making the storage cost to
the customer more attractive.

         Several   companies   offering  liquid   terminaling   facilities  have
significantly  more  capacity  than ST.  However,  much of ST's  tankage  can be
described as "niche" facilities that are equipped to properly handle "specialty"
liquids or provide  facilities or services where management  believes they enjoy
an advantage  over  competitors.  Most of the larger  operators,  including GATX
Terminals  Corporation,  Williams,  and Petroleum Fuel & Terminal Company,  have
facilities used primarily for petroleum related products.  As a result,  many of
ST's terminals compete against other large petroleum products terminals,  rather
than specialty  liquids  facilities.  Such specialty or "niche"  tankage is less
abundant in the U.S. and "specialty"  liquids  typically command higher terminal
fees than lower-price bulk terminaling for petroleum products.


Capital Expenditures

         Capital  expenditures by the Pipelines,  excluding  acquisitions,  were
$4.4 million (including $0.8 million in work-in-process),  $5.0 million and $4.5
million for 1999, 1998 and 1997,  respectively.  During these periods,  adequate
capacity  existed  on  the  Pipelines  to  accommodate  volume  growth  and  the
expenditures  required  for  environmental  and  safety  improvements  were  not
material in amount.  Capital expenditures,  excluding  acquisitions,  by ST were
$11.0  million,  $4.4  million  and  $6.1  million  for  1999,  1998  and  1997,
respectively.

         Capital  expenditures of the Partnership during 2000 are expected to be
approximately  $12 million to $15  million.  See  "Management's  Discussion  and
Analysis of  Financial  Condition  and  Results of  Operations  - Liquidity  and
Capital  Resources."  Additional  expansion-related  capital  expenditures  will
depend on future  opportunities  to expand  the  Partnership's  operations.  The
General  Partner  intends  to  finance  future  expansion  capital  expenditures
primarily through Partnership  borrowings.  Such future  expenditures,  however,
will depend on many factors beyond the Partnership's control, including, without
limitation,  demand for refined petroleum  products and terminaling  services in
the  Partnership's   market  areas,   local,  state  and  Federal   governmental
regulations,  fuel  conservation  efforts and the  availability  of financing on
acceptable  terms. No assurance can be given that required capital  expenditures
will not exceed  anticipated  amounts  during the year or thereafter or that the
Partnership  will  have  the  ability  to  finance  such  expenditures   through
borrowings or choose to do so.


Regulation

         Interstate   Regulation.   The  interstate   common  carrier   pipeline
operations of the  Partnership  are subject to rate regulation by FERC under the
Interstate  Commerce  Act. The  Interstate  Commerce Act  provides,  among other
things,  that to be lawful the rates of common carrier petroleum  pipelines must
be "just and  reasonable" and not unduly  discriminatory.  New and changed rates
must be filed with the FERC,  which may investigate  their lawfulness on protest
or its own motion.  The FERC may suspend the  effectiveness of such rates for up
to  seven  months.   If  the  suspension   expires  before   completion  of  the
investigation,  the rates go into  effect,  but the  pipeline can be required to
refund to shippers,  with interest,  any  difference  between the level the FERC
determines to be lawful and the filed rates under investigation. Rates that have
become final and  effective  may be  challenged  by complaint to FERC filed by a
shipper or on the FERC's own initiative and  reparations may be recovered by the
party filing the  complaint for the two year period prior to the  complaint,  if
FERC finds the rate to be unlawful.

         The FERC allows for a rate of return for petroleum  products  pipelines
determined  by adding (i) the  product of a rate of return  equal to the nominal
cost of debt  multiplied  by the  portion  of the rate base that is deemed to be
financed  with debt and (ii) the  product of a rate of return  equal to the real
(i.e., inflation-free) cost of equity multiplied by the portion of the rate base
that is deemed to be financed with equity.  The appropriate rate of return for a
petroleum  pipeline is determined on a case-by-case  basis,  taking into account
cost of capital, competitive factors and business and financial risks associated
with pipeline operations.

         Under  Title  XVIII of the  Energy  Policy  Act of 1992 (the "EP Act"),
rates  that were in effect  on  October  24,  1991  that were not  subject  to a
protest,  investigation or complaint are deemed to be just and reasonable.  Such
rates are subject to  challenge  only for limited  reasons.  Any relief  granted
pursuant to such challenges may be prospective  only.  Because the Partnership's
rates that were in effect on October 24, 1991, were subject to investigation and
protest  at that  time,  its rates  were not  deemed  to be just and  reasonable
pursuant  to the EP Act.  The  Partnership's  current  rates  became  final  and
effective  in April  1994,  and the  Partnership  believes  that  its  currently
effective  tariffs are just and reasonable and would  withstand  challenge under
the FERC's cost-based rate standards.  Because of the complexity of rate making,
however, the lawfulness of any rate is never assured.

         On October  22,  1993,  the FERC issued  Order No. 561 which  adopted a
simplified  rate making  methodology for future oil pipeline rate changes in the
form of  indexation.  Indexation,  which is also known as price cap  regulation,
establishes  ceiling  prices on oil  pipeline  rates based on  application  of a
broad-based  measure of inflation in the general economy to existing rates. Rate
increases up to the ceiling level are to be discretionary for the pipeline, and,
for  such  rate  increases,  there  will be no need to file  cost-of-service  or
supporting data.  Moreover,  so long as the ceiling is not exceeded,  a pipeline
may make a limitless  number of rate change  filings.  This  indexing  mechanism
calculates a ceiling rate. Rate decreases are required if the indexing mechanism
operates to reduce the  ceiling  rate below a  pipeline's  existing  rates.  The
pipeline may increase its rates to this calculated ceiling rate without filing a
formal cost based justification and with limited risk of shipper protests.

         The  indexation  method  is to serve  as the  principal  basis  for the
establishment  of oil  pipeline  rate changes in the future.  However,  the FERC
determined  that a pipeline  may  utilize any one of the  following  alternative
methodologies to indexing: (i) a cost-of-service  methodology may be utilized by
a pipeline to justify a change in a rate if a pipeline can demonstrate  that its
increased  costs  are  prudently  incurred  and  that  there  is  a  substantial
divergence  between such increased  costs and the rate that would be produced by
application  of the  index;  and  (ii) a  pipeline  may base  its  rates  upon a
"light-handed"  market-based  form of regulation if it is able to  demonstrate a
lack of significant market power in the relevant markets.

         On September 15, 1997, the Partnership  filed an Application for Market
Power  Determination  with the FERC seeking market based rates for approximately
half of its markets. In May 1998, the FERC granted the Partnership's application
and approximately half of the pipelines markets  subsequently  became subject to
market force regulation.

         In the  FERC's  Lakehead  decision  issued  June  15,  1995,  the  FERC
partially  disallowed  Lakehead's  inclusion  of  income  taxes  in its  cost of
service.  Specifically,  the FERC held that  Lakehead was entitled to receive an
income tax  allowance  with  respect  to income  attributable  to its  corporate
partners,  but  was  not  entitled  to  receive  such an  allowance  for  income
attributable to the Partnership interests held by individuals. Lakehead's motion
for rehearing  was denied by the FERC and Lakehead  appealed the decision to the
U.S.  Court of Appeals.  Subsequently,  the case was settled by Lakehead and the
appeal was  withdrawn.  In another  FERC  proceeding  involving a different  oil
pipeline  limited  partnership,  various  shippers  challenged  such  pipeline's
inclusion of an income tax allowance in its cost of service. The FERC Staff also
supported the  disallowance of income taxes. The FERC recently decided this case
on the same basis as the Lakehead  case. If the FERC were to disallow the income
tax  allowance in the cost of service of the Pipelines on the basis set forth in
the Lakehead order, the General Partner believes that the Partnership's  ability
to pay distributions to the holders of the Units would not be impaired; however,
in view of the uncertainties  involved in this issue,  there can be no assurance
in this regard.

         Intrastate  Regulation.  The intrastate operations of the East Pipeline
in Kansas are subject to regulation by the Kansas  Corporation  Commission,  and
the  intrastate  operations  of the West  Pipeline in  Colorado  and Wyoming are
subject to regulation by the Colorado Public Utility  Commission and the Wyoming
Public Service  Commission,  respectively.  Like the FERC, the state  regulatory
authorities  require  that  shippers be notified of proposed  intrastate  tariff
increases and have an  opportunity  to protest such  increases.  KPOP also files
with such state  authorities  copies of interstate tariff changes filed with the
FERC.  In  addition  to  challenges  to new or  proposed  rates,  challenges  to
intrastate  rates that have already become  effective are permitted by complaint
of an interested person or by independent  action of the appropriate  regulatory
authority.


Environmental Matters

         General.  The  operations  of the  Partnership  are subject to Federal,
state  and  local  laws  and  regulations  relating  to  the  protection  of the
environment in the United States and,  since  February  1999, the  environmental
laws and  regulations of the United Kingdom in regard to the terminals  acquired
from GATX Terminals,  Limited,  in the United Kingdom.  Although the Partnership
believes  that  its  operations  are  in  general   compliance  with  applicable
environmental  regulations,  risks of  substantial  costs  and  liabilities  are
inherent in pipeline and terminal operations, and there can be no assurance that
significant  costs and  liabilities  will not be  incurred  by the  Partnership.
Moreover,  it is possible that other  developments,  such as increasingly strict
environmental laws, regulations and enforcement policies thereunder,  and claims
for  damages  to  property  or  persons  resulting  from the  operations  of the
Partnership, past and present, could result in substantial costs and liabilities
to the Partnership.

         See "Item 3 - Legal  Proceedings" for information  concerning a lawsuit
against certain subsidiaries of the Partnership  involving jet fuel leaks from a
pipeline.

         Water.  The Oil  Pollution  Act  ("OPA") was enacted in 1990 and amends
provisions of the Federal Water Pollution Control Act of 1972 and other statutes
as they  pertain to  prevention  and  response to oil spills.  The OPA  subjects
owners of facilities to strict,  joint and potentially  unlimited  liability for
removal costs and certain other  consequences of an oil spill,  where such spill
is into navigable waters, along shorelines or in the exclusive economic zone. In
the event of an oil spill into such  waters,  substantial  liabilities  could be
imposed  upon  the  Partnership.  Regulations  concerning  the  environment  are
continually  being  developed  and  revised in ways that may  impose  additional
regulatory burdens on the Partnership.

         Contamination  resulting  from spills or releases of refined  petroleum
products  are not  unusual  within the  petroleum  pipeline  industry.  The East
Pipeline has  experienced  limited  groundwater  contamination  at five terminal
sites (Milford, Iowa; Norfolk and Columbus,  Nebraska; and Aberdeen and Yankton,
South Dakota)  resulting from spills of refined petroleum  products.  Regulatory
authorities  have been notified of these findings and  remediation  projects are
underway  or  under  construction  using  various  remediation  techniques.  The
Partnership  estimates that $1,436,000 has been expended to date for remediation
at these five sites and that ongoing remediation  expenses at each site will not
have a material effect on the East Pipeline.  Groundwater  contamination is also
known to exist at East Pipeline sites in Augusta,  Kansas and in Potwin, Kansas,
but no  remediation  has been  required.  Although no assurances can be made, if
remediation is required,  the Partnership believes that the resulting cost would
not be material.

         Groundwater  remediation  efforts  are  ongoing at all four of the West
Pipeline's  terminals and at a Wyoming pump station.  Regulatory  officials have
been consulted in the  development of remediation  plans. In connection with the
purchase of the West  Pipeline,  KPOP agreed to implement  remediation  plans at
these specific sites over the succeeding five years following the acquisition in
return for the payment by the seller,  Wyco Pipe Line Company,  of $1,312,000 to
KPOP to cover the discounted  estimated future costs of these  remediations.  In
conjunction with the acquisition, the Partnership accrued $1.8 million for these
future remediation expenses.

         In May 1998, the West Pipeline, at a point between Dupont, Colorado and
Fountain,  Colorado  failed,  and  approximately  1,000  barrels of product  was
released.  Containment  and  remedial  action was  immediately  commenced.  Upon
investigation,  it appeared  that the failure of the  pipeline was due to damage
caused by third party  excavations.  The Partnership has made claim to the third
party as well as to its insurance  carriers.  The Partnership has entered into a
Compliance  Order on  Consent  with the State of  Colorado  with  respect to the
remediation.  As of December 31, 1999, the Partnership has incurred $1.2 million
of costs in connection  with this incident.  Future costs are not anticipated to
be significant.  The Partnership  has recovered  substantially  all of its costs
from its insurance carrier.

         ST has experienced  groundwater  contamination at its terminal sites at
Baltimore,  Maryland,  and Alamogordo,  New Mexico.  Regulatory authorities have
been notified of these findings and cleanup is underway using  extraction  wells
and air strippers. Groundwater contamination also exists at the ST terminal site
in Stockton,  California and in the areas  surrounding  this site as a result of
the past  operations  of five of the  facilities  operating in this area. ST has
entered  into an  agreement  with three of these  other  companies  to  allocate
responsibility  for the clean up of the  contaminated  area.  Under the  current
approach, clean up will not be required,  however based on risk assessment,  the
site will continue to be monitored and tested.  In addition,  ST is  responsible
for  up  to  two-thirds  of  the  costs  associated  with  existing  groundwater
contamination  at a formerly  owned terminal at Marcy,  New York,  which also is
being remediated through extraction wells and air strippers. The Partnership has
expended  approximately  $1,001,000  through 1999 for  remediation at these four
sites  and  estimates   that  on-going   remediation   expenses  will  aggregate
approximately $200,000 to $300,000 over the next three years.

         Groundwater  contamination  has been identified at ST terminal sites at
Montgomery,  Alabama and  Milwaukee,  Wisconsin,  but no  remediation  has taken
place.  Shell  Oil  Company  has  indemnified  ST for any  contamination  at the
Milwaukee site prior to ST's acquisition of the facility. Star Enterprises,  the
former owner of the Montgomery terminal, has indemnified ST for contamination at
a portion of the Montgomery  site where  contamination  was identified  prior to
ST's  acquisition of the facility.  A remediation  system is in place to address
groundwater  contamination at the ST terminal facility in Augusta, Georgia. Star
Enterprises,  the former owner of the Augusta  terminal,  has indemnified ST for
this contamination and has retained  responsibility for the remediation  system.
There is also a possibility  that groundwater  contamination  may exist at other
facilities.  Although no assurance in this regard can be given,  the Partnership
believes that such contamination,  if present, could be remedied with extraction
wells and air  strippers  similar  to those that are  currently  in use and that
resulting costs would not be material.

         In 1991, the Environmental  Protection  Agency (the "EPA")  implemented
regulations   expanding  the  definition  of  hazardous   waste.   The  Toxicity
Characteristic  Leaching  Procedure  ("TCLP") has  broadened  the  definition of
hazardous waste by including 25 constituents  that were not previously  included
in  determining  that a waste is  hazardous.  Water that  comes in contact  with
petroleum may fail the TCLP procedure and require additional  treatment prior to
its  disposal.   The  Partnership  has  installed  totally  enclosed  wastewater
treatment  systems at all East Pipeline  terminal  sites to treat such petroleum
contaminated water, especially tank bottom water.

         The  EPA  has  also  promulgated   regulations  that  may  require  the
Partnership  to apply for permits to discharge  storm water runoff.  Storm water
discharge  permits  also  may  be  required  in  certain  states  in  which  the
Partnership  operates.  Where such requirements are applicable,  the Partnership
has applied for such  permits  and,  after the  permits  are  received,  will be
required to sample storm water  effluent  before  releasing it. The  Partnership
believes  that  effluent  limitations  could be met,  if  necessary,  with minor
modifications  to existing  facilities and operations.  Although no assurance in
this regard can be given,  the  Partnership  believes  that the changes will not
have a material effect on the  Partnership's  financial  condition or results of
operations.

         Groundwater  contamination  has been  experienced  at ST's Piney Point,
Maryland,  Jacksonville,  Florida and each of the Washington,  D.C.  facilities.
Foreseeable remediation expenses are estimated not to exceed $1.6 million.

         Aboveground  Storage  Tank  Acts.  A number of the  states in which the
Partnership  operates  in the United  States  have  passed  statutes  regulating
aboveground  tanks  containing  liquid  substances.  Generally,  these  statutes
require  that such  tanks  include  secondary  containment  systems  or that the
operators take certain  alternative  precautions to ensure that no contamination
results from any leaks or spills from the tanks. Although there is not currently
a Federal statute  regulating  these above ground tanks,  there is a possibility
that such a law will be passed in the United  States  within the next  couple of
years.  The  Partnership  is in  substantial  compliance  with all above  ground
storage  tank laws in the states with such laws.  Although no  assurance  can be
given, the Partnership  believes that the future  implementation of above ground
storage tank laws by either additional states or by the Federal  government will
not have a material adverse effect on the Partnership's  financial  condition or
results of operations.

         Air  Emissions.  The operations of the  Partnership  are subject to the
Federal Clean Air Act and comparable  state and local statutes.  The Partnership
believes that the  operations of the Pipelines and Terminals are in  substantial
compliance with such statutes in all states in which they operate.

         Amendments to the Federal Clean Air Act enacted in 1990 require or will
require most industrial  operations in the United States to incur future capital
expenditures in order to meet the air emission control  standards that have been
and are to be  developed  and  implemented  by the EPA and  state  environmental
agencies.  Pursuant  to  these  Clean  Air  Act  Amendments,  those  Partnership
facilities that emit volatile organic  compounds  ("VOC") or nitrogen oxides are
subject to  increasingly  stringent  regulations,  including  requirements  that
certain sources install maximum or reasonably  available control technology.  In
addition,  the 1999 Federal  Clean Air Act  Amendments  include a new  operating
permit  for major  sources  ("Title V  Permits"),  which  applies to some of the
Partnership's facilities. Additionally, new dockside loading facilities owned or
operated  by the  Partnership  in the United  States  will be subject to the New
Source  Performance  Standards that were proposed in May 1994. These regulations
require control of VOC emissions from the loading and unloading of tank vessels.

         Although the  Partnership is in substantial  compliance with applicable
air  pollution  laws,  in  anticipation  of the  implementation  of stricter air
control  regulations,  the Partnership is taking actions to substantially reduce
its air  emissions.  The  Partnership  plans to install bottom loading and vapor
recovery  equipment on the loading  racks at selected  terminal  sites along the
East Pipeline that do not already have such emissions control  equipment.  These
modifications  will  substantially  reduce the total air emissions  from each of
these  facilities.  Having begun in 1993, this project is being phased in over a
period of years.

         Solid Waste. The Partnership  generates  non-hazardous solid waste that
is subject to the requirements of the Federal Resource Conservation and Recovery
Act ("RCRA") and  comparable  state  statutes in the United  States.  The EPA is
considering  the  adoption  of stricter  disposal  standards  for  non-hazardous
wastes.  RCRA also  governs the disposal of hazardous  wastes.  At present,  the
Partnership  is not  required to comply with a  substantial  portion of the RCRA
requirements because the Partnership's operations generate minimal quantities of
hazardous wastes. However, it is anticipated that additional wastes, which could
include wastes  currently  generated  during  pipeline  operations,  will in the
future be designated as "hazardous wastes". Hazardous wastes are subject to more
rigorous and costly disposal  requirements than are non-hazardous  wastes.  Such
changes in the  regulations  may result in additional  capital  expenditures  or
operating expenses by the Partnership.

         At the terminal sites at which  groundwater  contamination  is present,
there is also  limited  soil  contamination  as a result  of the  aforementioned
spills.  The  Partnership  is under no  present  requirements  to  remove  these
contaminated  soils, but the Partnership may be required to do so in the future.
Soil contamination also may be present at other Partnership  facilities at which
spills or releases have occurred.  Under certain circumstances,  the Partnership
may be required to clean up such contaminated soils. Although these costs should
not have a material adverse effect on the Partnership, no assurance can be given
in this regard.

         Superfund. The Comprehensive  Environmental Response,  Compensation and
Liability Act ("CERCLA" or  "Superfund")  imposes  liability,  without regard to
fault or the  legality of the original  act, on certain  classes of persons that
contributed  to the release of a  "hazardous  substance"  into the  environment.
These  persons  include  the owner or operator  of the site and  companies  that
disposed or arranged for the disposal of the hazardous  substances  found at the
site.  CERCLA also authorizes the EPA and, in some  instances,  third parties to
act in response to threats to the public health or the  environment  and to seek
to recover from the responsible  classes of persons the costs they incur. In the
course of its ordinary  operations,  the Partnership may generate waste that may
fall within CERCLA's definition of a "hazardous substance".  The Partnership may
be  responsible  under CERCLA for all or part of the costs  required to clean up
sites at which such wastes have been disposed.

         Environmental   Impact   Statement.    The   United   States   National
Environmental  Policy Act of 1969 (the "NEPA") applies to certain  extensions or
additions  to  a  pipeline  system.  Under  NEPA,  if  any  project  that  would
significantly  affect  the  quality  of the  environment  requires  a permit  or
approval from any United States Federal agency, a detailed  environmental impact
statement  must be  prepared.  The effect of the NEPA may be to delay or prevent
construction of new facilities or to alter their  location,  design or method of
construction.

         Indemnification.  KPL has agreed to indemnify the  Partnership  against
liabilities for damage to the environment  resulting from operations of the East
Pipeline prior to October 3, 1989. Such  indemnification  does not extend to any
liabilities  that arise  after such date to the extent such  liabilities  result
from change in environmental laws or regulations.  Under such indemnity,  KPL is
presently liable for the remediation of groundwater contamination resulting from
three spills and the possible groundwater contamination at a pumping and storage
site referred to under  "Water" to the standards  that are in effect at the time
such remediation  operations are concluded.  In addition,  ST's former owner has
agreed to  indemnify  the  Partnership  against  liabilities  for damages to the
environment  from  operations  conducted  by such former owner prior to March 2,
1993. The indemnity, which expired March 1, 1998, is limited in amount to 60% of
any claim exceeding  $100,000 until an aggregate  amount of $10 million has been
paid by ST's former owner.  In addition,  with respect to unknown  environmental
expenses  from  operations  conducted  by Wyco  Pipe Line  Company  prior to the
closing of the Partnership's  acquisition of the West Pipeline,  KPOP has agreed
to pay the first $150,000 of such expenses, KPOP and Wyco Pipe Line Company will
share, on an equal basis,  the next $900,000 of such expenses and Wyco Pipe Line
Company will  indemnify  KPOP for up to $2,950,000 of such expenses  thereafter.
The indemnity expired August 1999. To the extent that environmental  liabilities
exceed the amount of such indemnity,  KPOP has affirmatively  assumed the excess
environmental liabilities.


Safety Regulation

         The Pipelines are subject to regulation by the United States Department
of  Transportation  under  the  Hazardous  Liquid  Pipeline  Safety  Act of 1979
("HLPSA")  relating  to  the  design,   installation,   testing,   construction,
operation,  replacement and management of their pipeline  facilities.  The HLPSA
covers petroleum and petroleum  products  pipelines and requires any entity that
owns or operates pipeline  facilities to comply with such safety regulations and
to permit  access to and  copying of records  and to make  certain  reports  and
provide information as required by the Secretary to Transportation.  The Federal
Pipeline  Safety Act of 1992  amended the HLPSA to include  requirements  of the
future use of internal inspection devices. The Partnership does not believe that
it will be required to make any substantial capital  expenditures to comply with
the requirements of HLPSA as so amended.

         The  Partnership  is subject to the  requirements  of the United States
Federal  Occupational  Safety and  Health  Act  ("OSHA")  and  comparable  state
statutes  that regulate the  protection of the health and safety of workers.  In
addition,   the  OSHA  hazard  communication   standard  requires  that  certain
information  be  maintained  about  hazardous  materials  used  or  produced  in
operations and that this  information be provided to employees,  state and local
authorities  and  citizens.  The  Partnership  believes  that  it is in  general
compliance with OSHA requirements,  including general industry standards, record
keeping requirements and monitoring of occupational exposure to benzene.

         The OSHA hazard communication standard, the EPA community right-to-know
regulations   under  Title  III  of  the   Federal   Superfund   Amendment   and
Reauthorization  Act, and comparable  state statutes  require the Partnership to
organize  information  about the  hazardous  materials  used in its  operations.
Certain parts of this information must be reported to employees, state and local
governmental  authorities,  and local  citizens  upon request.  In general,  the
Partnership  expects to  increase  its  expenditures  during the next  decade to
comply  with higher  industry  and  regulatory  safety  standards  such as those
described above. Such expenditures cannot be accurately  estimated at this time,
although  they  are  not  expected  to have a  material  adverse  impact  on the
Partnership.


Employees

         The  Partnership  has no employees.  The business of the Partnership is
conducted by the General Partner,  KPL, which at December 31, 1999, employed 635
persons.  Approximately  196 of the  persons  employed  by KPL were  subject  to
representation by unions for collective  bargaining purposes;  however,  only 85
persons  employed  at four of KPL's  terminal  unit  locations  were  subject to
collective  bargaining  or  similar  contracts  at that  date.  Union  contracts
regarding conditions of employment for 17, 20, 14 and 34 employees are in effect
through  November 1, 2000,  June 30, 2001,  February 28, 2002 and June 29, 2002,
respectively. All such contracts are subject to automatic renewal for successive
one year periods unless either party provides  written notice in a timely manner
to terminate or modify such agreement.


Item 2.    Properties

         The  properties   owned  or  utilized  by  the   Partnership   and  its
subsidiaries  are  generally  described  in  Item 1 of this  Report.  Additional
information  concerning the obligations of the Partnership and its  subsidiaries
for lease and rental commitments is presented under the caption "Commitments and
Contingencies" in Note 6 to the Partnership's consolidated financial statements.
Such descriptions and information are hereby incorporated by reference into this
Item 2.

         The  properties  used in the  operations  of the Pipelines are owned by
KPP, through its subsidiary entities, except for KPL's operational headquarters,
located in Wichita,  Kansas,  which is held under a lease that  expires in 2004.
The majority of ST's facilities are owned,  while the remainder,  including most
of  its  terminal   facilities   located  in  port  areas  and  its  operational
headquarters,  located in Dallas,  Texas,  are held pursuant to lease agreements
having various expiration dates, rental rates and other terms.


Item 3.    Legal Proceedings

         Certain  subsidiaries  of the  Partnership  are defendants in a lawsuit
filed in a Texas state court in 1997 by Grace Energy Corporation ("Grace"),  the
entity from which the  Partnership  acquired  ST  Services in 1993.  The lawsuit
involves  environmental  response and remediation  allegedly  resulting from jet
fuel leaks in the early 1970's from a pipeline. The pipeline,  which connected a
former Grace  terminal with Otis Air Force Base,  was abandoned in 1973, and the
connecting  terminal was sold to an unrelated entity in 1976. Grace alleges that
it has incurred since 1996 expenses of approximately $3 million for response and
remediation  required by the State of Massachusetts and that it expects to incur
additional  expenses  in the  future.  On January 20,  2000,  the  Massachusetts
Department of Environmental  Protection  notified the  Partnership's  subsidiary
that it had  reason  to  believe  that the  subsidiary  was  also a  Potentially
Responsible   Party.   The  subsidiary   replied  to  that  letter  denying  any
responsibility  for  the  Massachusetts  response  and/or  remediation.   Future
expenses could potentially  include claims by the United States  Government,  as
described below. Grace alleges that subsidiaries of the Partnership acquired the
abandoned  pipeline,  as part of the  acquisition  of ST Services  in 1993,  and
assumed  responsibility  for environmental  damages caused by the jet fuel leaks
from the  pipeline.  Grace is  seeking  a ruling  that  these  subsidiaries  are
responsible for all present and future remediation  expenses for these leaks and
that Grace has no obligation to indemnify these subsidiaries for these expenses.
The case is set for trial in May 2000.

         The consistent position of the Partnership's  subsidiaries is that they
did not acquire the abandoned  pipeline as part of the 1993 ST  transaction  and
did not assume any  responsibility  for the  environmental  damage.  In an order
granting partial summary  judgment,  the trial judge has ruled that the pipeline
was an asset of the company  acquired by the subsidiary.  The  subsidiaries  are
continuing  with their defense that the pipeline had been abandoned prior to the
acquisition  of ST Services and could not have been  included in the assets they
acquired.  The defendants have also counter-claimed  against Grace for fraud and
mutual mistake, among other defenses. If they are successful at trial with their
defenses and/or  counterclaims,  the judge's partial summary judgment order will
be moot. The defendants also believe they have certain rights to indemnification
from Grace under the  acquisition  agreement  with Grace.  These rights  include
claims against Grace for breaches of numerous  representations  in the agreement
including the environmental representations.  The acquisition agreement includes
Grace's  agreement to indemnify  the  subsidiaries  against 60% of  post-closing
environmental  remediation costs,  subject to a maximum indemnity payment of $10
million.

         The  Otis  Air  Force  Base  is a part  of the  Massachusetts  Military
Reservation  ("MMR"),  which has been declared a Superfund  Site pursuant to the
Comprehensive  Environmental  Response,  Compensation and Liability Act. The MMR
Site contains nine groundwater  contamination plumes, two of which are allegedly
associated  with the  pipeline,  and  various  other waste  management  areas of
concern,  such as  landfills.  The United  States  Department of Defense and the
United States Coast Guard, pursuant to a Federal Facilities Agreement,  has been
responding to the Government  remediation  demand for most of the  contamination
problems at the MMR Site.  Grace and others have also  received and responded to
formal  inquiries  from the United  States  Government  in  connection  with the
environmental   damages  allegedly  resulting  from  the  jet  fuel  leaks.  The
Partnership's  subsidiaries have voluntarily responded to an invitation from the
Government to provide information  indicating that they do not own the pipeline.
In connection with a court-ordered mediation between Grace and the subsidiaries,
the Government  advised the parties in April 1999 that it has identified the two
spill areas that it believes to be related to the  pipeline  that is the subject
of the Grace suit.  The  Government  advised the parties that it believes it has
incurred costs of approximately $34 million,  and expects in the future to incur
costs of approximately  $55 million,  for remediation of one of the spill areas.
This amount was not intended to be a final accounting of costs or to include all
categories of costs.  The Government  also advised the parties that it could not
at that time  allocate  its costs  attributable  to the second  spill area.  The
Partnership   believes  that  the  ultimate  cost  of  the  remediation,   while
substantial,  will be considerably  less than the Government has indicated.  The
Partnership  also  believes  that,  even  if the  lawsuit  determines  that  the
subsidiary is the owner of the  pipeline,  the  defendants  have defenses to any
claim of the  Government.  Any claims by the  Government  could be  material  in
amount  and,  if  made  and  ultimately   sustained  against  the  Partnership's
subsidiaries,  could  adversely  affect  the  Partnership's  ability to pay cash
distributions to its Unitholders.

         The  Partnership  has  other  contingent   liabilities  resulting  from
litigation,  claims and commitments incident to the ordinary course of business.
Management  believes,  based  on  the  advice  of  counsel,  that  the  ultimate
resolution of such  contingencies  will not have a materially  adverse effect on
the financial position or results of operations of the Partnership.


Item 4.    Submission of Matters to a Vote of Security Holders

         The  Partnership  did not hold a meeting of  Unitholders  or  otherwise
submit any matter to a vote of security holders in the fourth quarter of 1999.


                                     PART II


Item 5.    Market for the Registrant's Units and Related Unitholder Matters

         The Partnership's  limited  partnership  interests ("Units") are listed
and traded on the New York Stock Exchange (the "NYSE"),  under the symbol "KPP."
At March 15, 2000, there were  approximately  1,000  Unitholders.  On August 14,
1998, the Partnership paid its regular  quarterly cash distribution of $0.65 per
unit to the holders of each class of the Partnership's  outstanding  Units. This
cash   distribution   represented   the  twelfth   consecutive   quarterly  cash
distribution  of Available Cash  constituting  Cash from Operations in an amount
equal to or exceeding the $0.55 Minimum  Quarterly  Distribution,  as such terms
are defined in the  Partnership's  Amended  and  Restated  Agreement  of Limited
Partnership (the "Partnership Agreement"). As a result of this payment, pursuant
to the terms of the Partnership Agreement, the Preference Period ended effective
July 1, 1998, and all differences and  distinctions  between Senior  Preference,
Preference and Common Units automatically ceased as of such date.  Consequently,
as of August 14, 1998, all outstanding units of limited partnership interests in
the  Partnership  were  designated  as "Units,"  constituting  a single class of
securities.  Set forth below are prices on the NYSE and cash  distributions  for
the  periods  indicated  for  Senior  Preference  Units  and  Preference  Units,
respectively, through August 14, 1998 and, thereafter, for Units.
<TABLE>
<CAPTION>

                           Senior Preference            Preference                                          Cash
                            Unit Prices(1)            Unit Prices(1)                Unit Prices(2)      Distributions
Year                      High         Low           High         Low             High          Low       Declared(3)
----                    ---------------------      ---------------------        ---------------------   --------------
1998:
     <S>                 <C>         <C>            <C>         <C>              <C>          <C>       <C>

     First Quarter       37 1/2      34 11/16       36 1/8      33 1/4                                  $     .65
     Second Quarter      37 7/8      34             35 5/8      33 5/16                                       .65
     Third Quarter       37 7/8      32 3/16        35 3/8      32 1/8           33           29 7/5          .65
     Fourth Quarter                                                              33 1/4       29 5/8          .65

1999:
     First Quarter                                                               29 3/16      26 1/4          .70
     Second Quarter                                                              29 3/4       27 1/4          .70
     Third Quarter                                                               29 3/4       26 1/2          .70
     Fourth Quarter                                                              26 15/16     21 5/16         .70

2000:
     First Quarter                                                               28 3/16      24 3/16         .70
        (through March 15, 2000)
</TABLE>

(1)      Through August 14, 1998
(2)      From August 14, 1998
(3)      The amounts shown were paid on each class of units.


         Under  the  terms  of its  financing  agreements,  the  Partnership  is
prohibited  from  declaring  or paying  any  distribution  if a  default  exists
thereunder.


Item 6.    SUMMARY HISTORICAL FINANCIAL AND OPERATING DATA

         The  following  table  sets  forth,  for the  periods  and at the dates
indicated,  selected historical financial and operating data for Kaneb Pipe Line
Partners,  L.P. and subsidiaries (the "Partnership").  The data in the table (in
thousands,  except per unit  amounts) is derived from the  historical  financial
statements  of the  Partnership  and  should  be read in  conjunction  with  the
Partnership's  audited financial statements.  See also "Management's  Discussion
and Analysis of Financial Condition and Results of Operations."

<TABLE>
<CAPTION>
                                                          Year Ended December 31,
                                       -------------------------------------------------------------
                                         1999         1998         1997         1996         1995(a)
                                       ---------    ---------    ---------    ---------    ---------
<S>                                    <C>          <C>          <C>          <C>          <C>
Income Statement Data:
Revenues ...........................   $ 158,028    $ 125,812    $ 121,156    $ 117,554    $  96,928
                                       ---------    ---------    ---------    ---------    ---------
Operating costs ....................      69,148       52,200       50,183       49,925       40,617
Depreciation and amortization ......      15,043       12,148       11,711       10,981        8,261
General and administrative .........       9,424        6,261        5,793        5,259        5,472
                                       ---------    ---------    ---------    ---------    ---------
    Total costs and expenses .......      93,615       70,609       67,687       66,165       54,350
                                       ---------    ---------    ---------    ---------    ---------

Operating income ...................      64,413       55,203       53,469       51,389       42,578
Interest and other income ..........         408          626          562          776          894
Interest expense ...................     (13,390)     (11,304)     (11,332)     (11,033)      (6,437)
Minority interest in net income ....        (499)        (441)        (420)        (403)        (360)
                                       ---------    ---------    ---------    ---------    ---------
Income before income taxes .........      50,932       44,084       42,279       40,729       36,675
Income tax provision ...............      (1,496)        (418)        (718)        (822)        (627)
                                       ---------    ---------    ---------    ---------    ---------

Net income .........................   $  49,436    $  43,666    $  41,561    $  39,907    $  36,048
                                       =========    =========    =========    =========    =========
Allocation of net income (b)(c) per:
    Unit ...........................                                          $    2.81    $    2.67
                                                                              =========    =========
    Senior Preference Unit .........                             $    2.55    $    2.46    $    2.20
                                                                 =========    =========    =========
    Preference Unit ................                             $    2.55    $    2.46    $    2.20
                                                                 =========    =========    =========

Cash Distributions declared per (c):
    Unit ...........................                                          $    2.80    $    2.60
                                                                              =========    =========
    Senior Preference Unit .........                             $    2.50    $    2.30    $    2.20
                                                                 =========    =========    =========
    Preference Unit ................                             $    2.50    $    2.30    $    2.20
                                                                 =========    =========    =========

Balance Sheet Data (at period end):
Property and equipment, net ........   $ 316,883    $ 268,626    $ 247,132    $ 249,733    $ 246,471
Total assets .......................     365,953      308,432      269,032      274,765      267,787
Long-term debt .....................     155,987      153,000      132,118      139,453      136,489
Partners' capital ..................     168,288      105,388      104,196      103,340      100,748
</TABLE>

(a)      Includes the operations of the West Pipeline  since its  acquisition in
         February 1995 and the  operations of Steuart since its  acquisition  in
         December 1995.

(b)      Net income is allocated to the limited  partnership  units in an amount
         equal to the cash distributions  declared for each reporting period and
         any  remaining  income or loss is  allocated to any class of units that
         did not  receive  the same  amount of cash  distributions  per unit (if
         any).  If the same cash  distributions  per unit are  declared  for all
         classes  of units,  income or loss is  allocated  pro rata based on the
         aggregate amount of distributions declared.

(c)      Prior to the third quarter of 1998, the  Partnership  had three classes
         of  partnership   interests  designated  as  Senior  Preference  Units,
         Preference  Units  and  Common  Units,  respectively.  Pursuant  to the
         Partnership  Agreement,  on August 14,  1998,  each such class of units
         were  converted  into a single class  designated as "Units",  effective
         July 1, 1998. Allocations of net income and cash distributions declared
         were equal for all  classes of units in 1998.  See "Item 5 - Market for
         Registrant's Units and Related Unitholder Matters."


<PAGE>
Item 7.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations

         This  discussion  should be read in conjunction  with the  consolidated
financial statements of Kaneb Pipe Line Partners, L.P. and notes thereto and the
summary  historical  financial  and operating  data  included  elsewhere in this
report.


General

         In September  1989,  Kaneb Pipe Line Company  ("KPL"),  a  wholly-owned
subsidiary of Kaneb Services, Inc. ("Kaneb"),  formed the Partnership to own and
operate  its refined  petroleum  products  pipeline  business.  The  Partnership
operates  through KPOP, a limited  partnership in which the Partnership  holds a
99% interest as limited partner and KPL owns a 1% interest as general partner in
both the  Partnership  and KPOP. The  Partnership is engaged  through  operating
subsidiaries  in the refined  petroleum  products  pipeline  business and, since
1993, terminaling and storage of petroleum products and specialty liquids.

         The  Partnership's   pipeline   business  consists   primarily  of  the
transportation  through  the East  Pipeline  and the West  Pipeline,  as  common
carriers, of refined petroleum products. The East Pipeline and the West Pipeline
are  collectively  referred  to as  the  "Pipelines."  The  Pipelines  primarily
transport  gasoline,  diesel  oil,  fuel  oil  and  propane.  The  products  are
transported from refineries connected to the Pipeline, directly or through other
pipelines,  to  agricultural  users,  railroads and  wholesale  customers in the
states in which the  Pipelines  are located  and in  portions  of other  states.
Substantially  all  of  the  Pipelines'  operations  constitute  common  carrier
operations  that are  subject  to  Federal  or  state  tariff  regulations.  The
Partnership  has not  engaged,  nor does it currently  intend to engage,  in the
merchant function of buying and selling refined petroleum products.

         The  Partnership's  business  of  terminaling  petroleum  products  and
specialty liquids is conducted under the name ST Services ("ST").

         On February 1, 1999, the Partnership, through two wholly-owned indirect
subsidiaries,  acquired six  terminals in the United  Kingdom from GATX Terminal
Limited for (pound)22.6 million  (approximately  $37.2 million) plus transaction
costs and the  assumption of certain  liabilities.  The  acquisition  of the six
locations,  which have an aggregate tankage capacity of 5.4 million barrels, was
initially  financed by term loans from a bank.  $13.3  million of the term loans
were  repaid in July 1999 with the  proceeds  from a public unit  offering.  See
"Liquidity and Capital  Resources".  Three of the terminals,  handling petroleum
products,  chemicals and molten sulfur,  respectively,  operate in England.  The
remaining three  facilities,  two in Scotland and one in Northern  Ireland,  are
primarily petroleum terminals.  All six terminals are served by deepwater marine
docks.

         On  October  30,  1998,   the   Partnership,   through  a  wholly-owned
subsidiary,   entered  into  acquisition  and  joint  venture   agreements  with
Northville  Industries  Corp.  ("Northville")  to acquire  and manage the former
Northville  terminal located in Linden,  New Jersey.  Under the agreements,  the
Partnership  acquired a 50% interest in the  newly-formed ST Linden Terminal LLC
for $20.5 million plus transaction costs. The petroleum storage facility,  which
has capacity of 3.9 million  barrels in 22 tanks,  was funded by bank  financing
which was repaid using  proceeds from a public unit  offering in July 1999.  See
"Liquidity and Capital Resources".

         The Partnership is the third largest  independent  liquids  terminaling
company in the United States. At December 31, 1999, ST operated 40 facilities in
19 states,  the  District of Columbia  and the United  Kingdom with an aggregate
tankage capacity of approximately 28.8 million barrels.


Pipeline Operations
                                               Year Ended December 31,
                                        -----------------------------------
                                           1999         1998         1997
                                        ---------    ---------    ---------
                                                    (in thousands)

     Revenues.........................  $  67,607    $  63,421    $  61,320
     Operating costs..................     23,579       22,057       21,696
     Depreciation and amortization....      5,090        4,619        4,885
     General and administrative.......      3,102        3,115        2,912
                                        ---------    ---------    ---------
     Operating income.................  $  35,836    $  33,630    $  31,827
                                        =========    =========    =========

         Pipelines  revenues are based on volumes shipped and the distances over
which such volumes are  transported.  For the years ended  December 31, 1999 and
1998, revenues increased by $4.2 million and $2.1 million,  respectively, due to
overall  increases in volumes shipped,  primarily on the East Pipeline.  Because
tariff rates are regulated by the FERC, the Pipelines  compete  primarily on the
basis of  quality  of  service,  including  delivering  products  at  convenient
locations  on a timely  basis to meet the needs of its  customers.  Barrel miles
totaled 18.4 billion, 17.0 billion and 16.1 billion for the years ended December
31, 1999, 1998 and 1997, respectively.

         Operating  costs,  which  include fuel and power costs,  materials  and
supplies,  maintenance and repair costs, salaries,  wages and employee benefits,
and property and other taxes, increased by $1.5 million in 1999 and $0.4 million
in 1998,  respectively.  The  increase  in both years were due to  increases  in
materials and supplies  costs,  including  additives,  that are volume  related.
General and  administrative  costs,  which include  managerial,  accounting  and
administrative  personnel costs,  office rental expense,  legal and professional
costs and other non-operating costs remained generally level in 1999 and 1998.


Terminaling Operations

                                               Year Ended December 31,
                                        -----------------------------------
                                           1999         1998         1997
                                        ---------    ---------    ---------
                                                    (in thousands)

     Revenues.........................  $  90,421    $  62,391    $  59,836
     Operating costs..................     45,569       30,143       28,487
     Depreciation and amortization....      9,953        7,529        6,826
     General and administrative.......      6,322        3,146        2,881
                                        ---------    ---------    ---------
     Operating income.................  $  28,577    $  21,573    $  21,642
                                        =========    =========    =========

         For the years ended December 31, 1999 and 1998,  revenues  increased by
$28.0 million and $2.6 million,  respectively,  due to terminal acquisitions and
increased  utilization of existing terminals due to favorable market conditions,
partially  offset by a decrease  in the  overall  price  realized  for  storage.
Average annual tankage  utilized for the years ended December 31, 1999, 1998 and
1997  aggregated  22.6 million  barrels,  15.2 million  barrels and 12.4 million
barrels,  respectively.  The 1999 and 1998  increases in average  annual tankage
utilized   resulted  from  the  acquisitions   and  increased   storage  at  the
Partnership's largest petroleum storage facility. Average revenues per barrel of
tankage utilized for the years ended December 31, 1999, 1998 and 1997 was $4.00,
$4.11 and $4.83,  respectively.  The decrease in 1999 and 1998 average  revenues
per barrel of tankage utilized was due to the storage of a larger  proportionate
volume of petroleum  products,  which are historically at lower per barrel rates
than specialty chemicals.

         Operating  costs increased by $15.4 million in 1999 and $1.7 million in
1998,  due to the  terminal  acquisitions  and  increases  in tank  utilization.
General and administrative expense increased by $3.2 million and $0.3 million in
1999 and 1998. The increase in 1998 and  approximately  one-half of the increase
in 1999 was also due to the terminal  acquisitions with the remaining portion of
the 1999 increase due to the extraordinarily high litigation costs.

         Total tankage  capacity (28.8 million barrels at December 31, 1999) has
been,  and is expected to remain,  adequate to meet  existing  customer  storage
requirements.  Customers  consider  factors  such as  location,  access  to cost
effective  transportation and quality of service,  in addition to pricing,  when
selecting terminal storage.


Liquidity and Capital Resources

         Cash provided by operating activities was $63.6 million,  $58.8 million
and $54.8 million for the years 1999, 1998 and 1997, respectively.  The increase
in cash provided by  operations in 1999 resulted from  increases in revenues and
operating  income  in  the  terminaling   operations   resulting  from  terminal
acquisitions and  improvements in pipeline  operations from increases in volumes
shipped. The increase in 1998 resulted from overall improvements in revenues and
operating income in the pipeline operations, and from increased volumes shipped.

         Capital expenditures,  excluding expansion capital  expenditures,  were
$15.4  million  (including  $0.8 million in  work-in-process),  $9.4 million and
$10.6  million  for  1999,  1998 and 1997,  respectively.  During  all  periods,
adequate  pipeline  capacity  existed  to  accommodate  volume  growth,  and the
expenditures  required for environmental  and safety  improvements were not, and
are not expected in the future to be, significant.  Environmental damages caused
by sudden  and  accidental  occurrences  are  included  under the  Partnership's
insurance  coverages  (subject  to  deductible  and  limits).   The  Partnership
anticipates   that  routine   maintenance   capital   expenditures   will  total
approximately $12 million to $15 million (excluding  acquisitions) in 2000. Such
future   expenditures,   however,   will  depend  on  many  factors  beyond  the
Partnership's  control,  including,  without  limitation,   demand  for  refined
petroleum products and terminaling  services in the Partnership's  market areas,
local, state and Federal governmental regulations, fuel conservation efforts and
the  availability  of financing on acceptable  terms.  No assurance can be given
that required capital  expenditures will not exceed  anticipated  amounts during
the year or thereafter or that the Partnership  will have the ability to finance
such expenditures through borrowings or choose to do so.

         The  Partnership   expects  to  fund  future  cash   distributions  and
maintenance  capital  expenditures  with  existing  cash  and  cash  flows  from
operating  activities.  Expansionary  capital  expenditures  are  expected to be
funded through additional  Partnership bank borrowings and/or future public unit
or debt offerings.

         The Partnership makes quarterly  distributions of 100% of its Available
Cash, as defined in the Partnership Agreement, to holders of limited partnership
units ("Unitholders") and the Company.  Available Cash consists generally of all
the cash receipts less all cash  disbursements  and reserves.  Distributions  of
$2.80  per unit  were  declared  to  Unitholders  in 1999,  $2.60  per unit were
declared to Unitholders in 1998 and $2.50 per unit was declared in 1997. Payment
of the August 14,  1998,  regular  cash  distribution  represented  the  twelfth
consecutive  quarterly  distribution  of Available Cash  constituting  Cash from
Operations  in an  amount  equal to or  exceeding  the $0.55  Minimum  Quarterly
Distribution  specified in the Partnership Agreement.  Accordingly,  pursuant to
the terms of the Partnership Agreement, all differences and distinctions between
Senior Preference Units,  Preference Units and Common Units automatically ceased
as of such date.  At that time,  all  outstanding  units of limited  partnership
interest in the Partnership became "Units" constituting a single class of equity
securities, which trade on the New York Stock Exchange under the symbol "KPP".

         The  Partnership  has a Credit  Agreement  with a bank  that  currently
provides a $25 million  revolving  credit facility for working capital and other
partnership  purposes.  Borrowings  under the Credit  Agreement bear interest at
variable rates and are due and payable in January 2001. The Credit Agreement has
a commitment fee of 0.15% per annum of the unused credit  facility.  At December
31, 1999, $2.2 million was drawn under this credit facility.

         In  January   1999,   the   Partnership,   through   two   wholly-owned
subsidiaries,  entered into a credit agreement with a bank that provides for the
issuance of $39.2  million of term loans in connection  with the United  Kingdom
terminal acquisition and $5.0 million for general Partnership purposes. The term
loans, which bear interest in varying amounts,  are secured by the capital stock
of the subsidiaries that acquired the United Kingdom terminals and by a mortgage
on the East  Pipeline  and are pari passu with the existing  mortgage  notes and
credit facility.  The term loans also contain certain  financial and operational
covenants.  $18.3  million of the term  loans were  repaid in July 1999 with the
proceeds from the public unit offering. The remaining portion ($25.8 million) is
due in January 2002.

         In July 1999, the Partnership  issued 2.25 million limited  partnership
units in a public offering at $30.75 per unit,  generating  approximately  $65.6
million in net proceeds. A portion of the proceeds was used to repay in full the
Partnership's  $15.0 million promissory note, the $25.0 million revolving credit
facility and $18.3 million in term loans  (including $13.3 million in term loans
resulting from the United Kingdom terminal acquisition).

         In the  FERC's  Lakehead  decision  issued  June  15,  1995,  the  FERC
partially  disallowed  Lakehead's  inclusion  of  income  taxes  in its  cost of
service.  Specifically,  the FERC held that  Lakehead was entitled to receive an
income tax  allowance  with  respect  to income  attributable  to its  corporate
partners,  but  was  not  entitled  to  receive  such an  allowance  for  income
attributable to the partnership interests held by individuals. Lakehead's motion
for rehearing  was denied by the FERC and Lakehead  appealed the decision to the
U. S. Court of Appeals.  Subsequently,  the case was settled by Lakehead and the
appeal was  withdrawn.  In another  FERC  proceeding  involving a different  oil
pipeline  limited  partnership,  various  shippers  challenged  such  pipeline's
inclusion of an income tax allowance in its cost of service. The FERC Staff also
supported the  disallowance of income taxes.  The FERC recently decided the case
on the same basis as the Lakehead  case. If the FERC were to disallow the income
tax  allowance in the cost of service of the Pipelines on the basis set forth in
the Lakehead order, the General Partner believes that the Partnership's  ability
to pay distributions to the holders of the Units would not be impaired; however,
in view of the uncertainties  involved in this issue,  there can be no assurance
in this regard.


Year 2000 Issue

         As of the date of this Report,  the Partnership has not experienced any
significant  disruptions in its operations  during the transition  into the Year
2000 ("Y2K").  In the third quarter of 1999, the  Partnership  announced that it
had completed its assessment of Y2K risks and that it had formulated contingency
plans to  mitigate  potential  adverse  effects  which  might have  arisen  from
noncompliant  systems or third parties who had not adequately  addressed the Y2K
issue. To date, the  Partnership has not incurred any significant  costs related
to Y2K issues.  The  Partnership  will  continue to monitor its  operations  and
systems  and  address  any  date-related  problems  that  may  arise as the year
progresses.

<PAGE>
Allocation of Net Income and Earnings

         Net income or loss is allocated  between limited partner  interests and
the general partner pro rata based on the aggregate amount of cash distributions
declared (including general partner incentive distributions). Beginning in 1997,
distributions  by the  Partnership  of Available  Cash reached the Second Target
Distribution,  as defined  in the  Partnership  Agreement,  which  entitled  the
general partner to receive certain  incentive  distributions at different levels
of cash distributions. Earnings per Unit shown on the consolidated statements of
income are calculated by dividing the limited  partners'  interest in net income
by the weighted average number of Units outstanding. If the allocation of income
had been made as if all income had been  distributed in cash,  earnings per Unit
would have been $2.81,  $2.66 and $2.53 for the years ended  December  31, 1999,
1998 and 1997, respectively.


Item 7(a).  Quantitative and Qualitative Disclosure About Market Risk

         The  principal  market risks  (i.e.,  the risk of loss arising from the
adverse  changes in market rates and prices) to which the Partnership is exposed
are interest  rates on the  Partnership's  debt and investment  portfolios.  The
Partnership  centrally  manages its debt and investment  portfolios  considering
investment  opportunities  and  risks  and  overall  financing  strategies.  The
Partnership's  investment  portfolio consists of cash equivalents;  accordingly,
the carrying amounts  approximate fair value.  The  Partnership's  variable rate
debt and investments  are not material to the financial  position or performance
of the Partnership.


Item 8.  Financial Statements and Supplementary Data

         The financial  statements  and  supplementary  data of the  Partnership
begin on page F-1 of this report.  Such  information is hereby  incorporated  by
reference into this Item 8.


Item 9.  Changes  in  and  Disagreements  with  Accountants  on Accounting  and
         Financial Disclosure.

         Reference is made to the  Registrant's  Current Reports on Form 8-K and
Form  8-K/A,  dated  November  6, 1998 and March 9,  1999,  respectively,  which
reports are incorporated herein by reference.


                                    PART III


Item 10. Directors and Executive Officers of the Registrant

         The  Partnership  is a limited  partnership  and has no directors.  The
Partnership  is managed by KPL as general  partner.  Set forth  below is certain
information  concerning  the  directors  and  executive  officers  of  KPL.  All
directors of the Company are elected annually by Kaneb, as its sole stockholder.
All officers serve at the discretion of the Board of Directors of KPL.
<TABLE>
<CAPTION>

                                                               Years of
                                          Position with        Service             % of
Name                      Age                  KPL             With KPL Units(m)    O/S
------------------------ -----   -----------------------------  ------  --------   -----
<S>                        <C>   <C>                            <C>      <C>       <C>
Edward D. Doherty          64    Chairman of the Board and      10 (a)   87,526      *
                                   Chief  Executive Officer
Leon E. Hutchens           65    President                      40 (b)       500     *
Ronald D. Scoggins         45    Senior Vice President           3 (c)     1,395     *
Jimmy L. Harrison          46    Vice President and Controller   7 (d)     -0-       *
Howard C. Wadsworth        55    Vice President,Treasurer        6 (e)     -0-       *
                                   and Secretary
Sangwoo Ahn                61    Director                       11 (f)    38,000     *
John R. Barnes             55    Director                       13 (g)   230,900    1.26%
Murray R. Biles            69    Director                       46 (h)       500     *
Frank M. Burke, Jr.        60    Director                        3 (i)     -0-       *
Charles R. Cox             57    Director                        5 (j)     7,000     *
Hans Kessler               50    Director                        3 (k)     -0-       *
James R. Whatley           73    Director                       11 (l)    25,400     *
                All Officers and Directors as a group (12 persons)                  2.14%
</TABLE>

*Less than one percent

(a)      Mr. Doherty,  Chairman of the Board and Chief Executive  Officer of KPL
         since September 1989, is also Senior Vice President of Kaneb.
(b)      Mr. Hutchens assumed his current position in January 1994,  having been
         with KPL since January 1960. Mr. Hutchens had been Vice President since
         January 1981.  Mr.  Hutchens was Manager of Product  Movement from July
         1976 to January 1981.
(c)      Mr. Scoggins became an executive  officer of KPL in August 1997,  prior
         to which he served in senior  level  positions  for ST for more than 10
         years.
(d)      Mr. Harrison  assumed his present  position in November 1992,  prior to
         which he served in a variety of financial positions including Assistant
         Secretary and Treasurer  with ARCO Pipe Line Company for  approximately
         19 years.
(e)      Mr.  Wadsworth also serves as Vice  President,  Treasurer and Secretary
         for Kaneb. Mr. Wadsworth joined Kaneb in October 1990.
(f)      Mr.  Ahn, a director  of KPL since  July  1989,  is also a director  of
         Kaneb.  Mr. Ahn has been a general  partner of Morgan  Lewis  Githens &
         Ahn, an investment  banking firm,  since 1982 and currently serves as a
         director of ITI  Technologies,  Inc.,  PAR Technology  Corporation  and
         Quaker Fabric Corporation.
(g)      Mr. Barnes, a director of KPL, is also Chairman of the Board, President
         and Chief Executive Officer of Kaneb.
(h)      Mr.  Biles  joined KPL in November  1953 and served as  President  from
         January 1985 until his retirement at the close of 1993.
(i)      Mr. Burke,  a director of KPL since January 1997, is also a director of
         Kaneb.  Mr. Burke has been  Chairman and  Managing  General  Partner of
         Burke,  Mayborn Company,  Ltd., a private investment company,  for more
         than the past five years. Mr. Burke also currently serves as a director
         of  Medicalcontrol,   Inc.  and  Miller  Exploration  Company.  He  was
         previously  associated  with Peat,  Marwick,  Mitchell & Co.  (now KPMG
         LLP),  an  international  firm of  certified  public  accountants,  for
         twenty-four years.
(j)      Mr. Cox, a director of KPL since  September 1995, is also a director of
         Kaneb. Mr. Cox has been a private business consultant since retiring in
         January  1998  from  Fluor  Daniel,  Inc.,  an  international  services
         company,  where he served in senior  executive level positions during a
         29 year career with that organization.
(k)      Mr.  Kessler,  elected to the Board on  February  19,  1998,  is also a
         director of Kaneb.  Mr.  Kessler has served as  Chairman  and  Managing
         Director of KMB Kessler + Partner GmbH since 1992. He was  previously a
         Managing  Director and Vice  President  of a European  Division of Tyco
         International Ltd.
(l)      Mr.  Whatley,  a director of KPL since July 1989, is also a director of
         Kaneb and served as  Chairman of the Board of  Directors  of Kaneb from
         February 1981 until April 1989.
(m)      Partnership  Units  listed are those  beneficially  owned by the person
         indicated,  his spouse or  children  living at home and do not  include
         Units in which the person has disclaimed any beneficial interest.


Audit Committee

         Messrs. Sangwoo Ahn and Frank M. Burke, Jr. serve as the members of the
Audit  Committee  of KPL.  Such  Committee  will,  on an annual  basis,  or more
frequently as such Committee may determine to be  appropriate,  review  policies
and practices of the Company and the  Partnership  and deal with various matters
as to which potential conflicts of interest may arise.


Committee Interlocks and Insider Participation

         The Company's Board of Directors does not have a compensation committee
or any other committee that performs the equivalent functions. During the fiscal
year ended December 31, 1999,  none of KPL's officers or employees  participated
in the  deliberations of KPL's Board of Directors  concerning  executive officer
compensation.


Section 16(a) Beneficial Ownership Reporting Compliance Statement

         Section  16(a)  of the  Securities  Exchange  Act of 1934,  as  amended
("Section 16(a)") requires the Company's  officers and directors,  among others,
to file  reports of  ownership  and changes of  ownership  in the  Partnership's
equity  securities with the Securities and Exchange  Commission and the New York
Stock Exchange. Such persons are also required by related regulations to furnish
the Company with copies of all Section 16(a) forms that they file.

         Based solely on its review of the copies of such forms  received by it,
KPL believes  that,  since  January 1, 1999,  its officers  and  directors  have
complied  with  all  applicable   filing   requirements   with  respect  to  the
Partnership's equity securities.


Item 11.   Executive Compensation

         The  Partnership  has  no  executive  officers,  but  is  obligated  to
reimburse  the  Company for  compensation  paid to KPL's  executive  officers in
connection with their operation of the Partnership's business.

         The  following  table  sets  forth  information  with  respect  to  the
aggregate  compensation  paid or accrued by the Company  during the fiscal years
1999, 1998 and 1997, to the Chief  Executive  Officer and each of the other most
highly compensated executive officers of KPL.

                           SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>

             Name and Principal                        Annual Compensation             All Other
               Position                Year        Salary(a)          Bonus(b)     Compensation(c)
         -------------------------     ----      ----------           ----------   ---------------
         <S>                           <C>       <C>                  <C>               <C>
         Edward D. Doherty(d)          1999      $  225,375           $    -0-          $  6,249
           Chairman of the             1998         216,758                -0-             6,402
           Board and Chief             1997         208,350             18,420(f)          6,541
           Executive Officer

         Leon E. Hutchens              1999         195,550             13,600             7,336
           President                   1998         188,083             10,000             7,027
                                       1997         180,617               -0-              7,338

         Ronald D. Scoggins(d)         1999         159,441(e)             -0-             6,343
           Senior Vice President       1998         161,348(e)             -0-             6,100
                                       1997         139,899(e)           9,210(g)          5,003

         Jimmy L. Harrison             1999         123,720              6,800             3,844
           Vice President and          1998         117,000              5,000             3,120
           Controller                  1997         110,532                -0-             2,854
</TABLE>

(a)      Amounts  for  1999,  1998  and  1997,  respectively,  include  deferred
         compensation  for Mr.  Doherty  ($14,720,  $13,692  and  $12,980);  Mr.
         Hutchens ($8,416, $4,869 and $922); and Mr. Scoggins ($11,212,  $10,600
         and $7,950).
(b)      Amounts earned in year shown and paid the following year.
(c)      Represents the Company's  contributions  to Kaneb's Savings  Investment
         Plan (a 401(k) plan) and the imputed value of  Company-paid  group term
         life insurance.
(d)      The  compensation  for these  individuals  is paid by  Kaneb,  which is
         reimbursed for all or substantially all of such compensation by KPL.
(e)      Amounts for 1999, 1998 and 1997, respectively, include $24,016, $31,131
         and $13,608 in the form of  Partnership  Units  (378,  412 and 227) and
         Kaneb Services, Inc. Common Stock (969, 1,322 and 1,927).
(f)      Includes deferred compensation of $18,420.
(g)      Includes deferred compensation of $9,210.


 Director's Fees

         During 1999,  each member of KPL's Board of Directors  who was not also
an employee  of the  Company or Kaneb was paid an annual  retainer of $10,000 in
lieu of all attendance fees.


Item 12.   Security Ownership of Certain Beneficial Owners and Management

      At March 15, 2000, KPL owned a combined 2% General Partner interest in the
Partnership and KPOP and, together with its affiliates, owned Units representing
an aggregate limited partner interest of approximately 28%.


Item 13.   Certain Relationships and Related Transactions

         KPL  is  entitled  to  certain  reimbursements  under  the  Partnership
Agreement.  For additional  information  regarding the nature and amount of such
reimbursements,   see  Note  7  to  the  Partnership's   consolidated  financial
statements.


                                     PART IV


Item 14.   Exhibits, Financial Statement Schedules, and Reports on Form 8-K

    (a) (1)Financial Statements                                        Beginning
                                                                          Page

     Set forth below is a list of financial statements appearing in this report.

         Kaneb Pipe Line Partners, L.P. and Subsidiaries Financial Statements:
           Consolidated Statements of Income
              - Three Years Ended December 31, 1999...................    F - 1
           Consolidated Balance Sheets
              - December 31, 1999 and 1998............................    F - 2
           Consolidated Statements of Cash Flows
              - Three Years Ended December 31, 1999...................    F - 3
           Consolidated Statements of Partners' Capital
              - Three Years ended December 31, 1999...................    F - 4
         Notes to Consolidated Financial Statements...................    F - 5
         Reports of Independent Accountants...........................    F - 14

    (a) (2)Financial Statement Schedules

         All schedules for which provision is made in the applicable  accounting
         regulation of the Securities  and Exchange  Commission are not required
         under the related instructions or are inapplicable,  and therefore have
         been omitted.


    (a) (3)List of Exhibits

3.1      Amended and Restated  Agreement of Limited  Partnership dated September
         27, 1989,  filed as Appendix A to the  Registrant's  Prospectus,  dated
         September 25, 1989, in connection  with the  Registrant's  Registration
         Statement  on Form S-1  (S.E.C.  File No.  33-30330)  which  exhibit is
         hereby incorporated by reference.

10.1     ST Agreement  and Plan of Merger date  December 21, 1992 by and between
         Grace Energy  Corporation,  Support Terminal Services,  Inc.,  Standard
         Transpipe Corp., and Kaneb Pipe Line Operating Partnership,  NSTS, Inc.
         and NSTI,  Inc. as amended by Amendment of STS Merger  Agreement  dated
         March 2, 1993,  filed as Exhibit 10.1 of the  exhibits to  Registrant's
         Current  Report on Form 8-K ("Form 8-K"),  dated March 16, 1993,  which
         exhibit is hereby incorporated by reference.

10.2     Restated Credit  Agreement  between Kaneb Operating  Partnership,  L.P.
         ("KPOP"),  Texas  Commerce  Bank,  N.A.,  ("TCB"),  and  certain  other
         Lenders,  dated December 22, 1994 (the "TCB Loan Agreement"),  filed as
         Exhibit 10.13 of the exhibits to the Registrant's Annual Report on Form
         10-K ("Form 10-K") for the year ended December 31, 1994,  which exhibit
         is hereby incorporated by reference.

10.3     Amendment to the TCB Loan Agreement,  dated January 30, 1998,  filed as
         Exhibit 10.3 to the Registrant's  Form 10-K for the year ended December
         31, 1997, which exhibit is hereby incorporated by reference.

10.4     Pledge and Security  Agreement  between Kaneb Pipe Line Company ("KPL")
         and TCB, dated October 11, 1993 (the "TCB Security  Agreement"),  filed
         as Exhibit 10.3 of the exhibits to the  Registrant's  Form 10-K for the
         year ended December 31, 1993,  which exhibit is hereby  incorporated by
         reference.

10.5     Amendment to the TCB Security  Agreement,  filed as Exhibit 10.5 to the
         Registrant's  Form 10-K for the year ended  December  31,  1998,  which
         exhibit is hereby incorporated by reference.

10.6     Note Purchase  Agreements,  dated  December 22, 1994,  filed as Exhibit
         10.2 of the  exhibits to  Registrant's  Form 8-K,  dated March 13, 1995
         (the "March 1995 Form 8-K"),  which exhibit is hereby  incorporated  by
         reference.

10.7     Note Purchase Agreements, dated June 27, 1996, filed as Exhibit 10.5 of
         the exhibits to the Registrant's  Form 10-K for the year ended December
         31, 1996, which exhibit is hereby incorporated by reference.

10.8     Agreement  for Sale and  Purchase  of  Assets  between  Wyco  Pipe Line
         Company and KPOP, dated February 19, 1995, filed as Exhibit 10.1 of the
         exhibits  to the  Registrant's  March 1995 Form 8-K,  which  exhibit is
         hereby incorporated by reference.

10.9     Asset Purchase  Agreements between and among Steuart Petroleum Company,
         SPC Terminals,  Inc., Piney Point Industries,  Inc., Steuart Investment
         Company,  Support Terminals  Operating  Partnership,  L.P. and KPOP, as
         amended, dated August 27, 1995, filed as Exhibits 10.1, 10.2, 10.3, and
         10.4 of the exhibits to  Registrant's  Current Report on Form 8-K dated
         January 3, 1996, which exhibits are hereby incorporated by reference.

10.10    Formation and Purchase  Agreement,  between and among Support  Terminal
         Operating  Partnership,  L.P.,  Northville  Industries Corp. and AFFCO,
         Corp.,   dated  October  30,  1998,   filed  as  exhibit  10.9  to  the
         Registrant's  Form 10-K for the year ended  December  31,  1998,  which
         exhibit is hereby incorporated by reference.

10.11    Agreement,  between and among,  GATX  Terminals  Limited,  ST Services,
         Ltd., ST Eastham, Ltd., GATX Termianls  Corporation,  Support Terminals
         Operating Partnership,  L.P. and Kaneb Pipe Line Partners,  L.P., dated
         January 26, 1999, filed as Exhibit 10.10 to the Registrant's  Form 10-K
         for  the  year  ended  December  31,  1998,  which  exhibit  is  hereby
         incorporated by reference.

10.12    Credit  Agreement,   between  and  among,  Kaneb  Pipe  Line  Operating
         Partnership,  L.P., ST Services, Ltd. and Suntrust Bank, Atlanta, dated
         January 27, 1999, filed as Exhibit 10.11 to the Registrant's  Form 10-K
         for  the  year  ended  December  31,  1998,  which  exhibit  is  hereby
         incorporated by reference.


21       List of Subsidiaries, filed herewith.

23       Consents of  independent  accountants:  KPMG LLP and
         PricewaterhouseCoopers LLP, filed herewith.

27       Financial Data Schedule, filed herewith.


(b)      Reports on Form 8-K

         None

<PAGE>
                 KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>

                                                       Year Ended December 31,
                                         -----------------------------------------------
                                              1999             1998             1997
                                         -------------    -------------    -------------
<S>                                      <C>              <C>              <C>
Revenues .............................   $ 158,028,000    $ 125,812,000    $ 121,156,000
                                         -------------    -------------    -------------
Costs and expenses:
   Operating costs ...................      69,148,000       52,200,000       50,183,000
   Depreciation and amortization .....      15,043,000       12,148,000       11,711,000
   General and administrative ........       9,424,000        6,261,000        5,793,000
                                         -------------    -------------    -------------
      Total costs and expenses .......      93,615,000       70,609,000       67,687,000
                                         -------------    -------------    -------------

Operating income .....................      64,413,000       55,203,000       53,469,000

Interest and other income ............         408,000          626,000          562,000
Interest expense .....................     (13,390,000)     (11,304,000)     (11,332,000)
                                         -------------    -------------    -------------
Income before minority
   interest and income taxes .........      51,431,000       44,525,000       42,699,000

Minority interest in net income ......        (499,000)        (441,000)        (420,000)

Income tax provision .................      (1,496,000)        (418,000)        (718,000)
                                         -------------    -------------    -------------

Net income ...........................      49,436,000       43,666,000       41,561,000

General partner's interest
   in net income .....................      (1,640,000)        (735,000)        (560,000)
                                         -------------    -------------    -------------
Limited partners' interest
   in net income .....................   $  47,796,000    $  42,931,000    $  41,001,000
                                         =============    =============    =============
Allocation of net income per
   Unit as described in Note 2 .......   $        2.81    $        2.67    $        2.55
                                         =============    =============    =============
Weighted average number of Partnership
   units outstanding .................      16,997,500       16,060,000       16,060,000
                                         =============    =============    =============
</TABLE>




                 See notes to consolidated financial statements.

                                      F - 1

<PAGE>
                 KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

                                                            December 31,
                                                 ------------------------------
                                                      1999            1998
                                                 -------------    -------------
                                     ASSETS

Current assets:
   Cash and cash equivalents ................... $   5,127,000    $     849,000
   Accounts receivable .........................    16,929,000       13,917,000
   Prepaid expenses ............................     5,036,000        4,035,000
                                                 -------------    -------------
      Total current assets .....................    27,092,000       18,801,000
                                                 -------------    -------------

Property and equipment .........................   439,537,000      377,248,000
Less accumulated depreciation ..................   122,654,000      108,622,000
                                                 -------------    -------------
      Net property and equipment ...............   316,883,000      268,626,000
                                                 -------------    -------------
Investment in affiliate ........................    21,978,000       21,005,000
                                                 -------------    -------------
                                                 $ 365,953,000    $ 308,432,000
                                                 =============    =============


                        LIABILITIES AND PARTNERS' CAPITAL

Current liabilities:
   Short-term debt ............................. $        --      $  10,000,000
   Accounts payable ............................     3,288,000        3,939,000
   Accrued expenses ............................     6,350,000        4,809,000
   Accrued distributions payable ...............    13,372,000       10,725,000
   Accrued taxes, other than income taxes ......     2,267,000        2,080,000
   Deferred terminaling fees ...................     3,075,000        3,526,000
   Payable to general partner ..................     1,411,000        6,785,000
                                                 -------------    -------------
      Total current liabilities ................    29,763,000       41,864,000
                                                 -------------    -------------

Long-term debt, less current portion ...........   155,987,000      153,000,000

Other liabilities and deferred taxes ...........    10,882,000        7,131,000

Minority interest ..............................     1,033,000        1,049,000

Commitments and contingencies

Partners' capital:
   Limited partners ............................   168,019,000      104,342,000
   General partner .............................     1,037,000        1,046,000
   Accumulated other comprehensive income (loss)
      - foreign currency translation adjustment.      (768,000)            --
                                                 -------------    -------------
      Total partners' capital ..................   168,288,000      105,388,000
                                                 -------------    -------------
                                                 $ 365,953,000    $ 308,432,000
                                                 =============    =============




                 See notes to consolidated financial statements.

                                      F - 2


<PAGE>
                 KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                           Year Ended December 31,
                                                             --------------------------------------------
                                                                 1999            1998            1997
                                                             ------------    ------------    ------------
<S>                                                          <C>             <C>             <C>
Operating activities:
   Net income ............................................   $ 49,436,000    $ 43,666,000    $ 41,561,000
   Adjustments to reconcile net income to net
      cash provided by operating activities:
      Depreciation and amortization ......................     15,043,000      12,148,000      11,711,000
      Minority interest in net income ....................        499,000         441,000         420,000
      Equity in earnings of affiliate, net of distribution     (1,072,000)           --
                                                             ------------    ------------    ------------
      Deferred income taxes ..............................      1,487,000         481,000         651,000
      Changes in working capital components:
        Accounts receivable ..............................     (3,012,000)     (2,414,000)         37,000
        Prepaid expenses .................................       (995,000)        (14,000)        300,000
        Accounts payable and accrued expenses ............      3,028,000       3,174,000        (336,000)
        Deferred terminaling fees ........................       (451,000)        634,000          18,000
        Payable to general partner .......................       (374,000)        642,000         432,000
                                                             ------------    ------------    ------------
           Net cash provided by operating activities .....     63,589,000      58,758,000      54,794,000
                                                             ------------    ------------    ------------

Investing activities:
   Capital expenditures ..................................    (14,568,000)     (9,401,000)    (10,641,000)
   Acquisitions of pipelines and terminals ...............    (44,390,000)    (44,410,000)           --
   Other .................................................     (2,064,000)     (1,121,000)        313,000
                                                             ------------    ------------    ------------
           Net cash used in investing activities .........    (61,022,000)    (54,932,000)    (10,328,000)
                                                             ------------    ------------    ------------
Financing activities:
   Changes in amounts due to/from
      general partner ....................................     (5,000,000)      5,000,000         975,000
   Issuance of debt ......................................     51,319,000      35,000,000            --
   Payments of debt and capital lease ....................    (58,332,000)     (6,453,000)     (7,036,000)
   Distributions, including minority interest ............    (51,850,000)    (42,900,000)    (40,225,000)
   Net proceeds from issuance of KPP units ...............     65,574,000            --              --
                                                             ------------    ------------    ------------
           Net cash provided by (used in) financing
               activities ................................      1,711,000      (9,353,000)    (46,286,000)
                                                             ------------    ------------    ------------

Increase (decrease) in cash and cash equivalents .........      4,278,000      (5,527,000)     (1,820,000)
Cash and cash equivalents at beginning of period .........        849,000       6,376,000       8,196,000
                                                             ------------    ------------    ------------
Cash and cash equivalents at end of period ...............   $  5,127,000    $    849,000    $  6,376,000
                                                             ============    ============    ============
Supplemental information - Cash paid for interest ........   $ 12,881,000    $ 11,156,000    $ 11,346,000
                                                             ============    ============    ============
</TABLE>

                 See notes to consolidated financial statements.

                                      F - 3

<PAGE>
                 KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL

<TABLE>
<CAPTION>
                                                                                     Accumulated
                                                                                        Other
                                                       Limited          General     Comprehensive                   Comprehensive
                                                     Partners (a)       Partner     Income (Loss)       Total           Income
                                                    -------------    -------------  -------------  --------------   -------------

<S>                                                 <C>              <C>            <C>            <C>              <C>
Partners' capital at January 1, 1997 ............   $ 102,316,000    $   1,024,000  $       --     $ 103,340,000    $        --

  1997 income allocation ........................      41,001,000          560,000          --        41,561,000       41,561,000

  Distributions declared ........................     (40,150,000)        (555,000)         --       (40,705,000)            --
                                                    -------------    -------------  ------------   -------------    -------------
  Comprehensive income for the year .............                                                                   $  41,561,000
                                                                                                                    =============
Partners' capital at December 31, 1997 ..........     103,167,000        1,029,000          --       104,196,000             --

  1998 income allocation ........................      42,931,000          735,000          --        43,666,000       43,666,000

  Distributions declared ........................     (41,756,000)        (718,000)         --       (42,474,000)            --
                                                    -------------    -------------  ------------   -------------    -------------
  Comprehensive income for the year .............                                                                   $  43,666,000
                                                                                                                    =============
Partners' capital at December 31, 1998 ..........     104,342,000        1,046,000          --       105,388,000             --

  1999 income allocation ........................      47,796,000        1,640,000          --        49,436,000       49,436,000

  Distributions declared ........................     (49,693,000)      (1,649,000)         --       (51,342,000)            --

  Issuance of units .............................      65,574,000             --            --        65,574,000             --

  Foreign currency translation adjustment .......            --               --        (768,000)       (768,000)        (768,000)
                                                    -------------    -------------  ------------   -------------    -------------
  Comprehensive income for the year .............                                                                   $  48,668,000
                                                                                                                    =============
Partners' capital at December 31, 1999 ..........   $ 168,019,000    $   1,037,000  $   (768,000)  $ 168,288,000
                                                    =============    =============  ============   =============
Limited partnership units outstanding at
  December 31, 1997 and 1998                           16,060,000              (b)          --        16,060,000

Units issued in 1999 ............................       2,250,000             --            --         2,250,000
                                                    -------------    -------------  ------------   -------------
Limited partnership units outstanding at
  December 31, 1999                                    18,310,000              (b)          --        18,310,000
                                                    =============    =============  ============   =============
</TABLE>

(a)      Prior to the third quarter of 1998, the  Partnership  had three classes
         of partnership interests designated Senior Preference Units, Preference
         Units and  Common  Units,  respectively.  Pursuant  to the  Partnership
         Agreement,  on August 14, 1998, each such class of units were converted
         into a single class  designated  "Units",  effective  July 1, 1998. See
         Note 2.
(b)      KPL owns a combined 2% interest in the Partnership as General Partner.




                 See notes to consolidated financial statements.

                                      F - 4
<PAGE>
                 KANEB PIPE LINE PARTNERS, L.P. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.    PARTNERSHIP ORGANIZATION

               Kaneb Pipe Line Partners,  L.P. ("KPP" or the  "Partnership"),  a
      master limited partnership, owns and operates a refined petroleum products
      pipeline  business and a petroleum  products and specialty liquids storage
      and terminaling business. The Partnership operates through Kaneb Pipe Line
      Operating  Partnership,  L.P. ("KPOP"), a limited partnership in which the
      Partnership  holds a 99%  interest  as  limited  partner.  Kaneb Pipe Line
      Company (the "Company"), a wholly-owned subsidiary of Kaneb Services, Inc.
      ("Kaneb"), as general partner, holds a 1% general partner interest in both
      the  Partnership  and KPOP. The Company's 1% interest in KPOP is reflected
      as the  minority  interest in the  financial  statements.  At December 31,
      1999, the Company, together with its affiliates,  owned an approximate 28%
      interest as a limited partner and as a general partner owned a combined 2%
      interest.

                In July  1999,  the  Partnership  issued  2.25  million  limited
      partnership  units in a public  offering  at $30.75  per unit,  generating
      approximately $65.6 million in net proceeds. A portion of the proceeds was
      used to repay in full the Partnership's $15.0 million promissory note, the
      $25.0 million  revolving  credit  facility and $18.3 million in term loans
      (including  $13.3 million in term loans  resulting from the United Kingdom
      terminal acquisition referred to in Note 3).

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

               The following significant accounting policies are followed by the
      Partnership in the preparation of the consolidated financial statements.

      Cash and cash equivalents

               The  Partnership's  policy  is to invest  cash in  highly  liquid
      investments with original maturities of three months or less. Accordingly,
      uninvested cash balances are kept at minimum levels.  Such investments are
      valued at cost,  which  approximates  market,  and are  classified as cash
      equivalents.  The  Partnership  does  not have  any  derivative  financial
      instruments.

      Property and equipment

               Property and equipment are carried at  historical  cost.  Certain
      leases have been  capitalized  and the leased assets have been included in
      property and equipment.  Additions of new equipment and major renewals and
      replacements  of existing  equipment  are  capitalized.  Repairs and minor
      replacements that do not materially increase values or extend useful lives
      are  expensed.  Depreciation  of property  and  equipment is provided on a
      straight-line  basis at rates based upon expected  useful lives of various
      classes of assets, as disclosed in Note 4. The rates used for pipeline and
      storage  facilities  of  KPOP  are the  same  as  those  which  have  been
      promulgated by the Federal Energy Regulatory Commission.

               The  carrying  value of property and  equipment  is  periodically
      evaluated  using   undiscounted   future  cash  flows  as  the  basis  for
      determining  if  impairment  exists under the  provisions  of 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". To the extent  impairment is indicated to exist,  an impairment  loss
      will be recognized under SFAS No. 121 based on fair value.

      Revenue and income recognition

               KPOP  provides  pipeline   transportation  of  refined  petroleum
      products and liquified petroleum gases. Revenue is recognized upon receipt
      of the products into the pipeline system.

               The  Partnership's  Support  Terminal  Services  operation ("ST")
      provides terminaling and other ancillary services. Storage fees are billed
      one month in advance  and are  reported  as  deferred  income.  Revenue is
      recognized in the month services are provided.

      Foreign currency translation

               The  Partnership  translates  the  balance  sheet of its  foreign
      subsidiary using year-end  exchange rates and translates  income statement
      amounts using the average  exchange  rates in effect during the year.  The
      gains and losses  resulting from the change in exchange rates from year to
      year have been  reported  separately as a component of  accumulated  other
      comprehensive  income  (loss)  in  Partners'  Capital.  Gains  and  losses
      resulting  from  foreign   currency   transactions  are  included  in  the
      statements of income.

      Environmental matters

               Environmental  expenditures that relate to current operations are
      expensed or capitalized,  as appropriate.  Expenditures  that relate to an
      existing condition caused by past operations,  and which do not contribute
      to current or future revenue  generation,  are expensed.  Liabilities  are
      recorded  when  environmental  assessments  and/or  remedial  efforts  are
      probable, and the costs can be reasonably estimated. Generally, the timing
      of these accruals  coincides with the completion of a feasibility study or
      the Partnership's commitment to a formal plan of action.

      Comprehensive income

              The  Partnership  has  adopted  the  provisions  of SFAS No.  130,
      "Reporting  Comprehensive  Income",  which  establishes  standards for the
      reporting and display of comprehensive income and its components in a full
      set of general purpose  financial  statements.  SFAS No. 130 only requires
      additional  disclosure  and does not  affect the  Partnership's  financial
      position or results of operations.

      Estimates

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

      Income tax considerations

      Income before income tax expense is made up of the following components:

                                           Year Ended December 31,
                                   ---------------------------------------
                                       1999         1998          1997
                                   -----------   -----------   -----------

          Partnership operations   $46,242,000   $42,827,000   $40,317,000
          Corporate operations:
             Domestic ..........       501,000     1,257,000     1,962,000
             Foreign ...........     4,189,000          --            --
                                   -----------   -----------   -----------
                                   $50,932,000   $44,084,000   $42,279,000
                                   ===========   ===========   ===========

               Partnership operations are not subject to Federal or state income
      taxes.   However,   certain   operations  of  ST  are  conducted   through
      wholly-owned  corporate  subsidiaries  which  are  taxable  entities.  The
      provision for income taxes for the periods ended  December 31, 1999,  1998
      and 1997  primarily  consists of deferred U.S. and foreign income taxes of
      $1.5 million, $.5 million and $.7 million,  respectively. The net deferred
      tax  liability  of $5.1  million and $3.6 million at December 31, 1999 and
      1998,  respectively,  consists of deferred tax  liabilities of $12 million
      and $8.8  million,  respectively,  and deferred tax assets of $6.9 million
      and $5.2  million,  respectively.  The  deferred tax  liabilities  consist
      primarily  of tax  depreciation  in  excess of book  depreciation  and the
      deferred tax assets consist  primarily of net operating  losses.  The U.S.
      corporate  operations  have  net  operating  loss  carryforwards  for  tax
      purposes totaling  approximately  $15.2 million which expire in years 2008
      through 2019. Additionally,  the Partnership's foreign operations have net
      operating loss carryforwards for tax purposes totaling  approximately $4.4
      million which do not have an expiration date.

               Since the income or loss of the  operations  which are  conducted
      through  limited  partnerships  will be included in the tax returns of the
      individual partners of the Partnership,  no provision for income taxes has
      been recorded in the accompanying  financial statements on these earnings.
      The tax returns of the  Partnership  are subject to examination by Federal
      and  state  taxing  authorities.   If  any  such  examination  results  in
      adjustments  to  distributive  shares of taxable  income or loss,  the tax
      liability of the partners would be adjusted accordingly.

               The tax attributes of the  Partnership's net assets flow directly
      to each  individual  partner.  Individual  partners  will  have  different
      investment  bases  depending  upon the timing and prices of acquisition of
      Partnership  units.  Further,  each  partner's  tax  accounting,  which is
      partially  dependent upon their  individual tax position,  may differ from
      the accounting followed in the financial  statements.  Accordingly,  there
      could be significant  differences  between each  individual  partner's tax
      basis and their  proportionate  share of the net  assets  reported  in the
      financial  statements.  SFAS  No.  109,  "Accounting  for  Income  Taxes,"
      requires  disclosure  by a  publicly  held  partnership  of the  aggregate
      difference  in the basis of its net assets for financial and tax reporting
      purposes.   Management  does  not  believe  that,  in  the   Partnership's
      circumstances, the aggregate difference would be meaningful information.

      Cash distributions

               The  Partnership  makes  quarterly  distributions  of 100% of its
      Available  Cash, as defined in the  Partnership  Agreement,  to holders of
      limited partnership units ("Unitholders") and the Company.  Available Cash
      consists  generally of all the cash receipts of the  Partnership  plus the
      beginning  cash balance less all of its cash  disbursements  and reserves.
      The Partnership expects to make distributions of all Available Cash within
      45 days  after the end of each  quarter  to  Unitholders  of record on the
      applicable record date.  Distributions of $2.80,  $2.60 and $2.50 per Unit
      were   declared  to  all  classes  of  Units  in  1999,   1998  and  1997,
      respectively.

               Distributions  by the  Partnership of its Available Cash are made
      99% to  Unitholders  and 1% to the  Company,  subject  to the  payment  of
      incentive distributions to the General Partner if certain target levels of
      cash  distributions  to the Unitholders are achieved.  The distribution of
      Available Cash for each quarter during the Preference  Period, as defined,
      was  subject  to the  preferential  rights of the  holders  of the  Senior
      Preference  Units ("SPUs") to receive the Minimum  Quarterly  Distribution
      for such  quarter,  plus any  arrearages  in the  payment  of the  Minimum
      Quarterly  Distribution  for prior  quarters,  before any  distribution of
      Available  Cash was made to holders of Preference  Units ("PUs") or Common
      Units ("CUs") for such quarter. The CUs were not entitled to arrearages in
      the  payment  of the  Minimum  Quarterly  Distribution.  In  general,  the
      Preference  Period  continued  until  such time as the  Minimum  Quarterly
      Distribution had been paid to the holders of the SPUs, the PUs and the CUs
      for twelve  consecutive  quarters.  Payment of the August 14, 1998 regular
      cash   distribution   represented   the  twelfth   consecutive   quarterly
      distribution  of Available Cash  constituting  Cash from  Operations in an
      amount  equal to or  exceeding  the $.55  Minimum  Quarterly  Distribution
      specified in the Partnership Agreement. Accordingly, pursuant to the terms
      of the Partnership  Agreement,  all differences and  distinctions  between
      SPUs, PUs and CUs automatically  ceased as of such date. At that time, all
      outstanding  units of  limited  partnership  interest  in the  Partnership
      became "Units,"  constituting a single class of equity  securities,  which
      trade on the New York Stock Exchange under the symbol "KPP".

      Allocation of net income and earnings

               For the periods  presented, net income or loss has been allocated
      between limited  partner  interests and the general partner pro rata based
      on the aggregate amount of cash distributions  declared (including general
      partner incentive distributions).  Beginning in 1997, distributions by the
      Partnership of Available Cash reached the Second Target  Distribution,  as
      defined in the Partnership  Agreement,  which entitled the general partner
      to  certain   incentive   distributions   at  different   levels  of  cash
      distributions.  Earnings per Unit shown on the consolidated  statements of
      income are calculated by dividing the amount of limited partners' interest
      in net income, by the weighted average number of Units outstanding. If the
      allocation  of income had been made as if all income had been  distributed
      in cash,  earnings per Unit would have been $2.81, $2.66 and $2.53 for the
      years ended December 31, 1999, 1998 and 1997, respectively.

      Change in presentation

               Certain  prior  year  financial  statement  items  have  been re-
      classified to conform with the 1999 presentation.


3.    ACQUISITIONS

              On October  30,  1998,  the  Partnership,  through a  wholly-owned
      subsidiary,  entered into  acquisition  and joint venture  agreements with
      Northville  Industries  Corp.  ("Northville")  to  acquire  and manage the
      former  Northville  terminal  located in  Linden,  New  Jersey.  Under the
      agreements, the Partnership acquired a 50% interest in the newly-formed ST
      Linden  Terminal  LLC  for  $20.5  million  plus  transaction  costs.  The
      investment  was funded by bank  financing  which was repaid using proceeds
      from the public unit offering in July 1999 (See Note 1). The investment is
      being  accounted for by the equity method of  accounting,  with the excess
      cost over net book value of the equity investment being amortized over the
      life of the underlying assets. During 1998, the Partnership acquired other
      terminals and pipelines for aggregate consideration of $23.9 million.

              On February 1, 1999,  the  Partnership,  through two  wholly-owned
      indirect  subsidiaries,  acquired six terminals in the United Kingdom from
      GATX  Terminal  Limited  for  (pound)22.6  million   (approximately  $37.2
      million) plus assumption of certain  liabilities.  The acquisition,  which
      was initially financed with term loans from a bank, has been accounted for
      using the purchase  method of accounting.  $13.3 million of the term loans
      were repaid in July 1999 with the  proceeds  from a public  unit  offering
      (see  Notes 1 and 5).  The pro  forma  effect of the  acquisition  was not
      material to the results of operations.


4.    PROPERTY AND EQUIPMENT

      The cost of property and equipment is summarized as follows:

<TABLE>
<CAPTION>
                                            Estimated
                                             Useful               December 31,
                                              Life      ------------------------------
                                             (Years)        1999              1998
                                            ---------   -------------    -------------
<S>                                         <C>         <C>              <C>
Land ...............................            --      $  21,585,000    $  19,744,000
Buildings ..........................              35        8,568,000        7,626,000
Furniture and fixtures .............              16        2,947,000        2,710,000
Transportation equipment ...........               6        4,469,000        4,131,000
Machinery and equipment ............         20 - 40       32,939,000       31,226,000
Pipeline and terminaling equipment..         20 - 40      364,396,000      305,745,000
Construction work-in-progress ......            --          4,633,000        6,066,000
                                                        -------------    -------------
Total property and equipment .......                      439,537,000      377,248,000
Accumulated depreciation ...........                     (122,654,000)    (108,622,000)
                                                        -------------    -------------
Net property and equipment .........                    $ 316,883,000    $ 268,626,000
                                                        =============    =============
</TABLE>


5.    DEBT

      Long-term debt is summarized as follows:

                                                             December 31,
                                                    ---------------------------
                                                        1999           1998
                                                    ------------   ------------
      First mortgage notes due 2001 and 2002 .....  $ 60,000,000   $ 60,000,000
      First mortgage notes due 2001 through 2016..    68,000,000     68,000,000
      Revolving credit facility ..................     2,200,000     25,000,000
      Term loans due in 2002 .....................    25,787,000           --
                                                    ------------   ------------
      Total long-term debt .......................  $155,987,000   $153,000,000
                                                    ============   ============

               In 1994, a wholly-owned subsidiary entered into a restated credit
      agreement with a group of banks that, as subsequently amended,  provides a
      $25 million revolving credit facility through January 31, 2001. The credit
      facility  bears  interest at variable  interest rates and has a commitment
      fee of 0.15% per annum of the unused  credit  facility.  At  December  31,
      1999, $2.2 million was drawn under the credit facility.

               Also, in 1994, another wholly-owned subsidiary of the Partnership
      issued  $33  million  of  first  mortgage  notes  ("Notes")  to a group of
      insurance  companies.  The Notes  bear  interest  at the rate of 8.05% per
      annum and are due on December 22, 2001. In 1995, a wholly-owned subsidiary
      of the Partnership issued $27 million of additional Notes due February 24,
      2002 which bear interest at the rate of 8.37% per annum. The Notes and the
      credit facility are secured by a mortgage on the East Pipeline and contain
      certain financial and operational covenants.

               In June 1996, a wholly-owned subsidiary of the Partnership issued
      $68 million of new first mortgage notes bearing  interest at rates ranging
      from 7.08% to 7.98%.  $35.0 million of these notes is due June 2001,  $8.0
      million is due June 2003, $10.0 million is due June 2006 and $15.0 million
      is due June 2016. The loan is secured,  pari passu with the existing Notes
      and credit facility, by a mortgage on the East Pipeline.

               In  January  1999,  the  Partnership,  through  two  wholly-owned
      subsidiaries,  entered into a credit  agreement  with a bank that provides
      for the  issuance of $39.2  million in term loans in  connection  with the
      United  Kingdom   terminal   acquisition  and  $5.0  million  for  general
      Partnership purposes. The term loans, $18.3 million of which bore interest
      in varying  amounts,  are secured by the capital stock of the subsidiaries
      that acquired the United  Kingdom  terminals and by a mortgage on the East
      Pipeline  and,  are pari passu  with  existing  mortgage  notes and credit
      facility.  The term loans also contain  certain  financial and operational
      covenants.  $18.3  million of the term loans were repaid in July 1999 with
      the proceeds from the public unit offering.  The remaining  portion ($25.8
      million) with a fixed rate of 7.14% is due in January 2002.

<PAGE>
6.    COMMITMENTS AND CONTINGENCIES

               The  following is a  schedule by  years  of future  minimum lease
      payments under operating leases as of December 31, 1999:

         Year ending December 31:

              2000.........................................    $   1,445,000
              2001.........................................        1,021,000
              2002.........................................          642,000
              2003.........................................          510,000
              2004.........................................          212,000
                                                               -------------
              Total minimum lease payments.................    $   3,830,000
                                                               =============

               Total rent  expense  under  operating  leases  amounted  to  $2.2
      million,  $1.1 million and $1.3  million  for  the  years  ended  December
      31, 1999, 1998 and 1997, respectively.

               The operations of the Partnership  are subject to Federal,  state
      and local laws and regulations  relating to protection of the environment.
      Although the Partnership believes its operations are in general compliance
      with applicable environmental  regulations,  risks of additional costs and
      liabilities  are inherent in pipeline and terminal  operations,  and there
      can be no assurance that  significant  costs and  liabilities  will not be
      incurred  by  the  Partnership.   Moreover,  it  is  possible  that  other
      developments,   such  as  increasingly   stringent   environmental   laws,
      regulations and enforcement policies thereunder, and claims for damages to
      property or persons  resulting  from the  operations  of the  Partnership,
      could result in substantial costs and liabilities to the Partnership.  The
      Partnership has recorded an undiscounted  reserve for environmental claims
      in the amount of $8.2 million at December 31, 1999, including $7.6 million
      related to acquisitions of pipelines and terminals.  During 1999 and 1998,
      respectively,  the  Partnership  incurred $0.9 million and $0.6 million of
      costs  related to such  acquisition  reserves  and reduced  the  liability
      accordingly.

               The Company has indemnified the Partnership  against  liabilities
      for damage to the  environment  resulting from  operations of the pipeline
      prior to October 3, 1989 (the date of formation of the  Partnership).  The
      indemnification  does not extend to any liabilities  that arise after such
      date  to  the  extent  that  the   liabilities   result  from  changes  in
      environmental laws and regulations.

               In  December   1995,   the   Partnership   acquired  the  liquids
      terminaling  assets  of  Steuart  Petroleum  Company  and  certain  of its
      affiliates.  The asset  purchase  agreement  includes a  provision  for an
      earn-out  payment based upon revenues of one of the terminals  exceeding a
      specified  amount for a  seven-year  period  ending in December  2002.  No
      amount was payable under the earn-out provision in 1997, 1998 and 1999.

               Certain  subsidiaries  of the  Partnership  are  defendants  in a
      lawsuit  filed in a Texas state court in 1997 by Grace Energy  Corporation
      ("Grace"),  the entity from which the Partnership  acquired ST Services in
      1993.  The  lawsuit  involves   environmental   response  and  remediation
      allegedly  resulting  from  jet  fuel  leaks in the  early  1970's  from a
      pipeline. The pipeline,  which connected a former Grace terminal with Otis
      Air Force Base,  was abandoned in 1973,  and the  connecting  terminal was
      sold to an unrelated  entity in 1976.  Grace  alleges that it has incurred
      since  1996  expenses  of   approximately  $3  million  for  response  and
      remediation  required by the State of Massachusetts and that it expects to
      incur  additional  expenses  in the  future.  On  January  20,  2000,  the
      Massachusetts   Department  of  Environmental   Protection   notified  the
      Partnership's subsidiary that it had reason to believe that the subsidiary
      was also a Potentially  Responsible  Party.  The subsidiary has replied to
      that letter  denying any  responsibility  for the  Massachusetts  response
      and/or  remediation.  Future expenses could potentially  include claims by
      the United  States  Government,  as described  below.  Grace  alleges that
      subsidiaries of the Partnership  acquired the abandoned pipeline,  as part
      of the acquisition of ST Services in 1993, and assumed  responsibility for
      environmental  damages  caused by the jet fuel  leaks  from the  pipeline.
      Grace is seeking a ruling that these  subsidiaries are responsible for all
      present and future remediation expenses for these leaks and that Grace has
      no obligation to indemnify these subsidiaries for these expenses. The case
      is set for trial in May 2000.

               The consistent position of the Partnership's subsidiaries is that
      they  did not  acquire  the  abandoned  pipeline  as  part of the  1993 ST
      transaction and did not assume any  responsibility  for the  environmental
      damage. In an order granting partial summary judgment, the trial judge has
      ruled  that  the  pipeline  was an asset of the  company  acquired  by the
      subsidiary.  The  subsidiaries  are continuing with their defense that the
      pipeline had been  abandoned  prior to the  acquisition of ST Services and
      could not have been included in the assets they  acquired.  The defendants
      have also  counter-claimed  against  Grace for fraud and  mutual  mistake,
      among other defenses.  If they are successful at trial with their defenses
      and/or  counterclaims,  the judge's partial summary judgment order will be
      moot. The defendants  believe they have certain rights to  indemnification
      from Grace  under the  acquisition  agreement  with  Grace.  These  rights
      include claims against Grace for breaches of numerous  representations  in
      the agreement including the environmental representations. The acquisition
      agreement includes Grace's agreement to indemnify the subsidiaries against
      60% of post-closing  environmental remediation costs, subject to a maximum
      indemnity payment of $10 million.

               The Otis Air Force Base is a part of the  Massachusetts  Military
      Reservation ("MMR"),  which has been declared a Superfund Site pursuant to
      the Comprehensive Environmental Response,  Compensation and Liability Act.
      The MMR Site contains nine groundwater  contamination plumes, two of which
      are  allegedly  associated  with the  pipeline,  and  various  other waste
      management  areas  of  concern,  such  as  landfills.  The  United  States
      Department  of Defense and the United  States Coast  Guard,  pursuant to a
      Federal  Facilities  Agreement,  has  been  responding  to the  Government
      remediation demand for most of the contamination problems at the MMR Site.
      Grace and others have also received and responded to formal inquiries from
      the United States Government in connection with the environmental  damages
      allegedly   resulting   from  the  jet  fuel  leaks.   The   Partnership's
      subsidiaries  have  voluntarily   responded  to  an  invitation  from  the
      Government  to  provide  information  indicating  that they do not own the
      pipeline.  In connection with a court-ordered  mediation between Grace and
      the subsidiaries, the Government advised the parties in April 1999 that it
      has  identified  the two spill areas that it believes to be related to the
      pipeline that is the subject of the Grace suit. The Government advised the
      parties  that it  believes  it has  incurred  costs of  approximately  $34
      million,  and  expects in the future to incur costs of  approximately  $55
      million,  for  remediation of one of the spill areas.  This amount was not
      intended to be a final accounting of costs or to include all categories of
      costs.  The Government  also advised the parties that it could not at that
      time  allocate  its costs  attributable  to the  second  spill  area.  The
      Partnership  believes  that the ultimate  cost of the  remediation,  while
      substantial,  will be considerably less than the Government has indicated.
      The Partnership  also believes that,  even if the lawsuit  determines that
      the subsidiary is the owner of the pipeline,  the defendants have defenses
      to any claim of the  Government.  Any  claims by the  Government  could be
      material  in amount  and,  if made and  ultimately  sustained  against the
      Partnership's  subsidiaries,  could  adversely  affect  the  Partnership's
      ability to pay cash distributions to its Unitholders.

               The Partnership has other contingent  liabilities  resulting from
      litigation,  claims and  commitments  incident to the  ordinary  course of
      business.  Management believes,  based on the advice of counsel,  that the
      ultimate  resolution  of such  contingencies  will not  have a  materially
      adverse  effect on the financial  position or results of operations of the
      Partnership.


7.    RELATED PARTY TRANSACTIONS

               The Partnership has no employees and is managed and controlled by
      the Company.  The Company and Kaneb are entitled to  reimbursement  of all
      direct and  indirect  costs  related  to the  business  activities  of the
      Partnership.  These costs, which totaled $11.9 million,  $11.3 million and
      $10.8  million  for the years  ended  December  31,  1999,  1998 and 1997,
      respectively,  include  compensation  and  benefits  paid to officers  and
      employees  of the  Company  and Kaneb,  insurance  premiums,  general  and
      administrative costs, tax information and reporting costs, legal and audit
      fees.  Included in this  amount is $10.3  million,  $9.3  million and $9.0
      million of  compensation  and benefits,  paid to officers and employees of
      the  Company  for the  years  ended  December  31,  1999,  1998 and  1997,
      respectively,  which  represent the actual  amounts paid by the Company or
      Kaneb. In addition,  the Partnership paid $.2 million during each of these
      respective  years  for an  allocable  portion  of the  Company's  overhead
      expenses.  At December 31, 1999 and 1998, the Partnership owed the Company
      $1.4 million and $1.8 million,  respectively, for these expenses which are
      due under normal invoice terms.  Additionally,  at December 31, 1998, $5.0
      million was  payable to the Company  under a  short-term  promissory  note
      agreement. The promissory note, which accrued interest at 6.75% per annum,
      was repaid in February 1999.


8.    BUSINESS SEGMENT DATA

               The  Partnership   conducts   business   through  two   principal
      operations;  the "Pipeline  Operations,"  which consists  primarily of the
      transportation of refined petroleum products in the Midwestern states as a
      common carrier,  and the "Terminaling  Operations,"  which provide storage
      for petroleum products, specialty chemicals and other liquids.

<PAGE>
               The  Partnership  measures  segment  profit  as operating income.
      Total assets are those assets controlled by each reportable segment.
<TABLE>
<CAPTION>
                                                                     Year Ended December 31,
                                                       -----------------------------------------------
                                                            1999             1998             1997
                                                       -------------    -------------    -------------
      <S>                                              <C>              <C>              <C>
      Business segment revenues:
          Pipeline operations ......................   $  67,607,000    $  63,421,000    $  61,320,000
          Terminaling operations ...................      90,421,000       62,391,000       59,836,000
                                                       -------------    -------------    -------------
                                                       $ 158,028,000    $ 125,812,000    $ 121,156,000
                                                       =============    =============    =============
      Business segment profit:
          Pipeline operations ......................   $  35,836,000    $  33,630,000    $  31,827,000
          Terminaling operations ...................      28,577,000       21,573,000       21,642,000
                                                       -------------    -------------    -------------
               Operating income ....................      64,413,000       55,203,000       53,469,000
          Interest expense .........................     (13,390,000)     (11,304,000)     (11,332,000)
          Interest and other income ................         408,000          626,000          562,000
                                                       -------------    -------------    -------------
               Income before minority interest
                 and income taxes...................   $  51,431,000    $  44,525,000    $  42,699,000
                                                       =============    =============    =============

      Business segment assets:
          Depreciation and amortization:
               Pipeline operations .................   $   5,090,000    $   4,619,000    $   4,885,000
               Terminaling operations ..............       9,953,000        7,529,000        6,826,000
                                                       -------------    -------------    -------------
                                                       $  15,043,000    $  12,148,000    $  11,711,000
                                                       =============    =============    =============
          Capital expenditures (excluding acquisitions):
               Pipeline operations .................   $   3,547,000    $   5,020,000    $   4,496,000
               Terminaling operations ..............      11,021,000        4,381,000        6,145,000
                                                       -------------    -------------    -------------
                                                       $  14,568,000    $   9,401,000    $  10,641,000
                                                       =============    =============    =============

                                                                        December 31,
                                                       -----------------------------------------------
                                                            1999             1998             1997
                                                       -------------   --------------    -------------
          Total assets:
              Pipeline operations ..................   $ 104,774,000   $  103,966,000    $  97,666,000
              Terminaling operations................     261,179,000      204,466,000      171,366,000
                                                       -------------   --------------    -------------
                                                       $ 365,953,000   $  308,432,000    $ 269,032,000
                                                       =============   ==============    =============
</TABLE>

     The following geographical area data includes revenues based on location of
     the  operating  segment and net  property and  equipment  based on physical
     location.

<TABLE>
<CAPTION>
                                                                   Year Ended December 31,
                                                       -----------------------------------------------
                                                            1999             1998             1997
                                                       -------------   --------------    -------------
     <S>                                               <C>             <C>               <C>
     Geographical area revenues:
              United States ........................   $ 136,197,000   $  125,812,000    $ 121,156,000
              United Kingdom .......................      21,831,000           --             --
                                                       -------------   --------------    -------------
                                                       $ 158,028,000   $  125,812,000    $ 121,156,000
                                                       =============   ==============    =============
     Geographical area operating income:
              United States ........................   $  58,539,000   $   55,203,000   $   53,469,000
              United Kingdom .......................       5,874,000           --             --
                                                       -------------   --------------   --------------
                                                       $  64,413,000   $   55,203,000   $   53,469,000
                                                       =============   ==============   ==============

     Geographical area net property and equipment:
              United States ........................   $ 275,178,000   $  268,626,000   $  247,132,000
              United Kingdom .......................      41,705,000           --             --
                                                       -------------   --------------   --------------
                                                       $ 316,883,000   $  268,626,000   $  247,132,000
                                                       =============   ==============   ==============
</TABLE>

<PAGE>
 9.   FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK

              The  estimated  fair value of all debt as of December 31, 1999 and
      1998 was approximately  $163 million and $171 million,  as compared to the
      carrying value of $156 million and $163 million, respectively.  These fair
      values were estimated using  discounted  cash flow analysis,  based on the
      Partnership's  current  incremental  borrowing  rates for similar types of
      borrowing arrangements.  These estimates are not necessarily indicative of
      the  amounts  that would be  realized in a current  market  exchange.  The
      Partnership has no derivative financial instruments.

              The Partnership  markets and sells its services to a broad base of
      customers and performs  ongoing credit  evaluations of its customers.  The
      Partnership does not believe it has a significant  concentration of credit
      risk at December 31, 1999. No customer  constituted  10 percent or more of
      consolidated revenues in 1999, 1998 or 1997.


10.   QUARTERLY FINANCIAL DATA (unaudited)

      Quarterly operating results for 1999 and 1998 are summarized as follows:
<TABLE>
<CAPTION>
                                                                            Quarter Ended
                                            --------------------------------------------------------------------------
                                                March 31,           June 30,          September 30,       December 31,
                                            ----------------    ----------------    ---------------     --------------
      <S>                                   <C>                 <C>                 <C>                 <C>
      1999:
        Revenues......................      $     36,845,000    $     39,171,000    $    41,573,000     $   40,439,000
                                            ================    ================    ===============     ==============

        Operating income..............      $     15,144,000    $     15,467,000    $    17,451,000     $   16,351,000
                                            ================    ================    ===============     ==============

        Net income....................      $     11,356,000    $     11,413,000    $    13,835,000     $   12,832,000
                                            ================    ================    ===============     ==============
        Allocation of net income
          per Unit....................      $            .68    $            .69    $           .76     $          .68
                                            ================    ================    ===============     ==============

      1998:
        Revenues......................      $     28,070,000    $     30,553,000    $    33,709,000     $   33,480,000
                                            ================    ================    ===============     ==============

        Operating income..............      $     11,900,000    $     12,946,000    $    15,710,000     $   14,647,000
                                            ================    ================    ===============     ==============

        Net income....................      $      8,960,000    $     10,030,000    $    12,598,000     $   12,078,000
                                            ================    ================    ===============     ==============
        Allocation of net income
          per Unit....................      $            .55    $            .61    $           .77     $          .74
                                            ================    ================    ===============     ==============
</TABLE>

<PAGE>
                        REPORT OF INDEPENDENT ACCOUNTANTS





To the Partners of
Kaneb Pipe Line Partners, L.P.


We have audited the 1999 and 1998  consolidated  financial  statements  of Kaneb
Pipe Line Partners,  L.P. and its subsidiaries (the  "Partnership") as listed in
the index appearing under Item 14(a)(1) on page 28. These consolidated financial
statements  are  the  responsibility  of  the  Partnership's   management.   Our
responsibility is to express an opinion on the consolidated financial statements
based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the financial position of the Partnership and
its  subsidiaries  as of December  31,  1999 and 1998,  and the results of their
operations  and their cash flows for the years then ended,  in  conformity  with
generally accepted accounting principles.


KPMG LLP
Dallas, Texas
February 25, 2000


<PAGE>
                        REPORT OF INDEPENDENT ACCOUNTANTS




To the Partners of
Kaneb Pipe Line Partners, L.P.


In our opinion,  the  consolidated  statements  of income,  of cash flows and of
changes in  partners'  capital as of and for the year ended  December  31,  1997
(listed in the index  appearing  under Item 14(a)(1) on page 28) present fairly,
in all material respects, the results of operations and cash flows of Kaneb Pipe
Line Partners,  L.P. and its subsidiaries (the "Partnership") for the year ended
December 31, 1997, in conformity with generally accepted accounting  principles.
These  financial   statements  are  the   responsibility  of  the  Partnership's
management;  our  responsibility  is to express  an  opinion on these  financial
statements  based on our audit.  We conducted  our audit of these  statements in
accordance with generally accepted auditing standards which 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,  assessing the accounting  principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion  expressed
above. We have not audited the consolidated  financial  statements of Kaneb Pipe
Line Partners,  L.P. and its subsidiaries for any period  subsequent to December
31, 1997.


PRICEWATERHOUSECOOPERS LLP
Dallas, Texas
February 19, 1998





<PAGE>



                                   SIGNATURES


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

                                           KANEB PIPE LINE PARTNERS, L.P.
                                           By:   Kaneb Pipe Line Company
                                                 General Partner

                                           By:   EDWARD D. DOHERTY
                                                 Chairman of the Board and
                                                 Chief  Executive Officer
                                           Date: March 24, 2000

         Pursuant to the  requirements  of the  Securities  and  Exchange Act of
1934,  this report has been signed below by the  following  persons on behalf of
Kaneb  Pipe Line  Partners,  L.P.  and in the  capacities  with  Kaneb Pipe Line
Company and on the date indicated.

        Signature                        Title                   Date
-----------------------------  ---------------------------  ---------------

Principal Executive Officer
  EDWARD D. DOHERTY            Chairman of the Board        March 24, 2000
                               and Chief Executive Officer

Principal Accounting Officer
  JIMMY L. HARRISON            Controller                   March 24, 2000

Directors

  SANGWOO AHN                  Director                     March 24, 2000

  JOHN R. BARNES               Director                     March 24, 2000

  M.R. BILES                   Director                     March 24, 2000

  FRANK M. BURKE, JR           Director                     March 24, 2000

  CHARLES R. COX               Director                     March 24, 2000

  HANS KESSLER                 Director                     March 24, 2000

  JAMES R. WHATLEY             Director                     March 24, 2000


<PAGE>

                                  EXHIBIT LIST

Exhibit
Number                                   Title
--------    --------------------------------------------------------------------

   21       List of Subsidiaries

   23       Consents of independent accountants:  KPMG LLP and
            PricewaterhouseCoopers  LLP

   27       Financial Data Schedule