<PAGE>

                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                             Washington, DC 20549

                                   FORM 10-K

                                  (Mark One)

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

                 For the fiscal year ended September 30, 2000
                                           ------------------

                                      OR

         [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
               SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]

             For the transition period from _________ to _________

                       Commission File Number: 33-98490
                                               --------

                            STAR GAS PARTNERS, L.P.
                            -----------------------
            (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                                                    <C>                   <C>
Delaware                                                                                     06-1437793
---------------------------------------------------------------                              ---------------------------------------
(State or other jurisdiction of incorporation or organization)                               (I.R.S. Employer Identification No.)


2187 Atlantic Street, Stamford, Connecticut                            06902
------------------------------------------------------------------------------------------------------------------------------------
(Address of principal executive office)                                (Zip Code)

(203) 328-7300
------------------------------------------------------------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
</TABLE>

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

    Title of each class                Name of each exchange on which registered
-------------------------------        -----------------------------------------
      Common Units                              New York Stock Exchange
      Senior Subordinated 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 is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]

The aggregate market value of Star Gas Partners, L.P. Common Units held by
non-affiliates of Star Gas Partners, L.P. on December 11, 2000 was approximately
$276,800,000. As of December 11, 2000 the number of Star Gas Partners, L.P.
shares outstanding for each class of common stock was:

      17,539,967      Common Units
       2,589,797      Senior Subordinated Units
         345,364      Junior Subordinated Units
         325,729      General Partner Units

Documents Incorporated by Reference:  None
<PAGE>

                            STAR GAS PARTNERS, L.P.

                         2000 FORM 10-K ANNUAL REPORT

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                    PART I

                                                                            Page
<S>                                                                         <C>
Item 1.   Business                                                            3
Item 2.   Properties                                                         13
Item 3.   Legal Proceedings - Litigation                                     13
Item 4.   Submission of Matters to a Vote of Security Holders                13

                                    PART II

Item 5.   Market for the Registrant's Units and Related Matters              14
Item 6.   Selected Historical Financial and Operating Data                   15
Item 7.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations                                          17
Item 7A.  Quantitative and Qualitative Disclosures about Market Risk         23
Item 8.   Financial Statements and Supplementary Data                        23
Item 9.   Changes in and Disagreements with Accountants on Accounting and
          Financial Disclosure                                               23

                                    PART III

Item 10.  Directors and Executive Officers of the Registrant                 24
Item 11.  Executive Compensation                                             28
Item 12.  Security Ownership of Certain Beneficial Owners and Management     30
Item 13.  Certain Relationships and Related Transactions                     30

                                    PART IV

Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K   31
</TABLE>

                                       2
<PAGE>

                                    PART I
                               ITEM 1. BUSINESS


Structure

Star Gas Partners, L.P. ("Star Gas Partners" or the "Partnership") is a
diversified home energy distributor and services provider, specializing in home
heating oil, propane, natural gas and electricity. Star Gas Partners is a Master
Limited Partnership which at September 30, 2000 had 16.0 million common limited
partner units (NYSE: "SGU" representing a 83.1% limited partner interest in Star
Gas Partners) and 2.6 million senior subordinated units (trading symbol "SGH"
representing a 13.4% limited partner interest in Star Gas Partners) outstanding.
Additional Partnership interests in Star Gas Partners are represented by 0.3
million junior subordinated units (representing a 1.8% limited partner interest
in Star Gas Partners) and 0.3 million general partner units (representing a 1.7%
general partner interest in Star Gas Partners).

Operationally the Partnership is organized as follows:

 .    Star Gas Propane, L.P., ("Star Gas Propane" or the "propane segment") is a
     wholly owned subsidiary of Star Gas Partners. Star Gas Propane markets and
     distributes propane gas and related products to approximately 200,000
     customers in the Midwest and Northeast.

 .    Petro Holdings, Inc. ("Petro" or the "heating oil segment"), is the
     nation's largest distributor of home heating oil and serves approximately
     350,000 customers in the Northeast and Mid-Atlantic. Petro is an indirect
     wholly owned subsidiary of Star Gas Propane.

 .    Total Gas and Electric ("TG&E" or the "natural gas and electric reseller
     segment") is an energy reseller that markets natural gas and electricity to
     residential homeowners in deregulated energy markets in the Northeast and
     Mid-Atlantic states of New York, New Jersey, Pennsylvania, Florida and
     Maryland and serves approximately 110,000 residential customers. TG&E is
     currently a 72.7% owned subsidiary of the Partnership.

 .    Star Gas Partners ("Partners" or the "Public Master Limited Partnership")
     includes the office of the Chief Executive Officer and in addition has the
     responsibility for maintaining investor relations and investor reporting
     for the Partnership.

Business

The seasonal nature of the Partnership's business results in the sale of
approximately 30% of its volume in the first fiscal quarter (October through
December) and 45% of its volume in the second fiscal quarter (January through
March) of each year, the peak heating season, because propane, heating oil and
natural gas are primarily used for space heating in residential and commercial
buildings. The Partnership generally realizes net income in both of these
quarters and net losses during the quarters ending June and September. In
addition, sales volume typically fluctuates from year to year in response to
variations in weather, wholesale energy prices and other factors.

Propane Operations
------------------

The propane segment is primarily engaged in the retail distribution of propane
and related supplies and equipment to residential, commercial, industrial,
agricultural and motor fuel customers. Propane customers are served from 91
branch locations and 56 satellite storage facilities in the Midwest and
Northeast In addition to its retail propane business, the propane segment also
serves wholesale customers from its underground cavern and storage facilities in
Seymour, Indiana. Based on sales dollars, approximately 90% of propane sales
were to retail customers and approximately 10% were to wholesale customers.
Retail sales have historically had a greater profit margin, more stable customer
base and less price sensitivity as compared to the wholesale business.

Propane is used primarily for space heating, water heating, clothes drying and
cooking by residential and commercial customers. Residential customers are
typically homeowners, while commercial customers include motels, restaurants,
retail stores and laundromats. Industrial users, such as manufacturers, use
propane as a heating and energy source in manufacturing and drying processes. In
addition, propane is used to supply heat for drying crops and curing tobacco and
as a fuel source for certain motor vehicles.

                                       3
<PAGE>

Propane is extracted from natural gas or oil wellhead gas at processing plants
or separated from crude oil during the refining process. Propane is normally
transported and stored in a liquid state under moderate pressure or
refrigeration for ease of handling in shipping and distribution. When the
pressure is released or the temperature is increased, propane is usable as a
flammable gas. Propane is colorless and odorless; an odorant is added to allow
its detection. Propane is clean-burning, producing negligible amounts of
pollutants when consumed. According to the American Petroleum Institute, the
domestic retail market for propane is approximately 9.4 billion gallons
annually. Based upon information contained in the Energy Information
Administration's Annual Energy Review-1997, propane accounts for approximately
3.5% of household energy consumption in the United States.

Home Heating Oil Operations
---------------------------

Home heating oil customers are served from 24 branch locations in the Northeast
and Mid-Atlantic regions, from which the heating oil segment installs and
repairs heating equipment 24 hours a day, seven days a week, 52 weeks a year,
generally within four hours of requests. These services are an integral part of
its basic home heating oil service, and are designed to maximize customer
satisfaction and loyalty. For fiscal 2000, the heating oil segment's sales were
comprised of approximately 78% from sales of home heating oil; 16% from the
installation and repair of heating equipment; and 6% from the sale of other
petroleum products, including diesel fuel and gasoline, to commercial customers.

Home heating oil is a primary source of home heat in the Northeast. The
Northeast accounts for approximately two-thirds of the demand for home heating
oil in the United States. During 1997, approximately 6.9 million homes, or
approximately 36% of all homes in the Northeast, were heated by oil. In recent
years, demand for home heating oil has been affected by conservation efforts and
conversions to natural gas. In addition, as the number of new homes that use oil
heat has not been significant, there has been virtually no increase in the
customer base due to housing starts. As a result, according to the most recent
available data, residential home heating oil consumption in the Northeast has
declined from approximately 5.3 billion gallons in 1982 to approximately 4.6
billion gallons in 1993.

Natural Gas and Electricity Operations
--------------------------------------

The Partnership is an independent reseller of natural gas and electricity to
residential homeowners and small commercial establishments in deregulated
markets, through its 72.7% controlling interest in TG&E. In the markets in which
TG&E operates, natural gas and electricity are available from wholesale natural
gas producers and electricity generating companies. Substantially all of TG&E's
natural gas was purchased from a major Texas wholesaler in fiscal 2000, with the
balance from several other wholesalers. Natural gas is transported to the local
utility company for TG&E, through purchased or assigned capacity on pipelines.
All of TG&E's electricity in fiscal 2000 was purchased from a major New York
State wholesaler which delivers the electricity to the local utility company.
The local utility company then delivers the natural gas and electricity to TG&E
customers using their existing distribution system. The local utility and TG&E
coordinate delivery and billing, and also compete to sell natural gas and
electricity to the ultimate consumer. Generally, TG&E pays the local utility a
service charge to provide for certain customer related costs like meter reading
and billing. Customers also pay a separate delivery charge to the local utility
for bringing the natural gas or electricity from the customer's chosen supplier.
In all but one market in which TG&E operates, both TG&E and local utility
charges are itemized on one customer energy bill generated by the utility. For
the remaining markets, TG&E directly bills the customer for the natural gas or
electricity supplied.

                                       4
<PAGE>

Industry Characteristics

The retail propane and home heating oil industries are both mature, with total
demand expected to remain relatively flat or to decline slightly. The
Partnership believes that these industries are relatively stable and predictable
due to the largely non-discretionary nature of propane and home heating oil use.
Accordingly, the demand for propane and home heating oil has historically been
relatively unaffected by general economic conditions but has been a function of
weather conditions. It is common practice in both the propane and home heating
oil distribution industries to price products to customers based on a per gallon
margin over wholesale costs. As a result, distributors generally seek to
maintain their margins by passing costs through to customers, thus insulating
themselves from the volatility in wholesale heating oil and propane prices.
However, during periods of sharp price fluctuations in supply costs,
distributors may be unable or unwilling to pass entire cost increases or
decreases through to customers. In these cases, significant increases or
decreases in per gallon margins may result. In addition, the timing of cost
pass-throughs can significantly affect margins. The propane and home heating oil
distribution industries are highly fragmented, characterized by a large number
of relatively small, independently owned and operated local distributors. Each
year a significant number of these local distributors have sought to sell their
business for reasons that include retirement and estate planning. In addition,
the propane and heating oil distribution industries are becoming more complex
due to increasing environmental regulations and escalating capital requirements
needed to acquire advanced, customer oriented technologies. Primarily as a
result of these factors, both industries are undergoing consolidation, and the
propane segment and the heating oil segment have been active consolidators in
each of their markets.

Historically, the local electric company provided its customers with all three
aspects of electric service: generation, transmission and distribution. However,
under deregulation, state Public Utility Commissions throughout the country are
licensing Energy Supply Companies ("ESCs") to be approved as alternative
suppliers of energy to end-users. ESCs will provide the "generation" function,
supplying electricity to specific delivery points. ESCs are essentially the
"manufacturers" of the electricity. ESCs also act as natural gas distributors,
as they bring natural gas to the local utility for redistribution on the utility
system to the ultimate end-user, the customer. The local utility companies will
continue to provide the "transmission" and "distribution" function, acting as
the distributor of the electricity and natural gas. Restructuring (commonly
called deregulation) means that consumers now have the option to select a new
provider for the commodity portion of their bill - a new supplier of electricity
or natural gas. ESCs are often able to supply electricity or natural gas to end
users at discounts when compared to what is paid to the current local utility.

Business Strategy

The Partnership's primary objective is to increase cash flow on a per unit
basis. The Partnership intends to pursue this objective principally through (i)
the pursuit of strategic acquisitions which capitalize on the Partnership's
acquisition expertise and the highly fragmented propane and home heating oil
distribution industries, (ii) the realization of operating efficiencies in
existing and acquired operations, (iii) a focus on customer growth and
retention, (iv) the continued enhancement in public awareness of the
Partnership's quality brands and (v) the sale of rationally related products.

In the Partnership's New York and Mid-Atlantic regions, the home heating oil
segment operates almost exclusively under the name of "Petro," rather than the
acquired brand names previously in use. The Partnership has been building the
"Petro" brand name by focusing on delivering premium service to its customers.

As the largest retail distributor of home heating oil and a leading retail
distributor of propane in the United States, the Partnership is able to realize
economies of scale in operating, marketing, information technology and other
areas by spreading costs over a larger customer base. Additionally, the heating
oil segment is using communication and computer technology that is generally not
used by its competitors, which has allowed it to realize operating efficiencies.

                                       5
<PAGE>

Propane

Operations
----------

The propane segment's retail propane operations are located primarily in the
Northeast and Midwest regions of the United States:

<TABLE>
<CAPTION>
NORTHEAST                                MIDWEST
---------                                -------
<S>                  <C>                 <C>                        <C>                        <C>
Connecticut          New York            Indiana                    Kentucky                   Ohio
Stamford             Addison             Batesville                 Dry Ridge                  Bowling Green
Hartford             Poughkeepsie        Bedford                    Glencoe                    Cincinnati
                     Washingtonville     Bluffton                   Prospect                   Columbiana
                                         College Corner             Shelbyville                Columbus
Maine                                    Columbia City                                         Defiance
Fairfield            Pennsylvania        Decatur                                               Deshler
Fryeburg             Hazleton            Ferdinand                  Michigan                   Dover
Randolph             Wellsboro           Greencastle                Big Rapids                 Ft. Recovery
Skowhegan            Wind Gap            Jeffersonville             Charlotte                  Hebron
Wells                                    Lawrence                   Chassell                   Ironton
Windham              Rhode Island        Linton                     Coleman                    Jamestown
                     Davisville          Madison                    Hillsdale                  Johnstown
                                         New Salisbury              Kalamazoo                  Kenton
Massachusetts                            N. Manchester              Marquete                   Lancaster
Belchertown                              N. Webster                 Munising                   Lewisburg
Rochdale                                 Orland                     Owosso                     Lynchburg
Westfield                                Portland                   Somerset Center            Macon
Swansea                                  Remington                  Vassar                     Marysville
                                         Richmond                                              Maumee
                                         Rushville                                             McClure
New Hampshire                            Seymour                    West Virginia              Milford
(from Fryeburg, ME)                      Shirley                    (from Ironton, OH)         Mt. Orab
                                         Sulphur Springs                                       Mt. Vernon
                                         Versailles                                            North Star
New Jersey                               Warren                                                Ripley
Maple Shade                              Waterloo                                              Sabina
Tuckahoe                                 Winamac                                               Waverly
                                                                                               West Union
</TABLE>

The Partnership's propane segment serves approximately 200,000 customers in the
Northeast and Midwestern states. In addition to selling propane, the propane
segment also sells, installs and services equipment related to its propane
distribution business, including heating and cooking appliances. At several
Midwest locations bottled water is sold and water conditioning equipment is
either sold or leased. Typical branch locations consist of an office, an
appliance showroom and a warehouse and service facility, with one or more 12,000
to 30,000 gallon bulk storage tanks. Satellite facilities typically contain only
storage tanks. The distribution of propane at the retail level for the most part
involves large numbers of small deliveries averaging 100 to 150 gallons to each
customer. Retail deliveries of propane are usually made to customers by means of
the propane segment's fleet of bobtail and rack trucks.

Currently the propane segment has 527 bobtail and rack trucks. Propane is pumped
from a bobtail truck, which generally holds 2,000 to 3,000 gallons, into a
stationary storage tank at the customer's premises. The capacity of these tanks
ranges from approximately 24 gallons to approximately 1,000 gallons. The propane
segment also delivers propane to retail customers in portable cylinders, which
typically are picked up and replenished at distribution locations, then returned
to the retail customer. To a limited extent, the propane segment also delivers
propane to certain end-users of propane in larger trucks known as transports.
These trucks have an average capacity of approximately 9,000 gallons. End-users
receiving transport deliveries include industrial customers, large-scale heating
accounts, such as local gas utilities that use propane as a supplemental fuel to
meet peak demand requirements, and large agricultural accounts that use propane
for crop drying and space heating.

                                       6
<PAGE>

Customers
---------

During fiscal 2000, the propane segment grew its residential customer base by
approximately 0.5% through internal marketing efforts. In addition, the propane
segment completed five acquisitions with approximately 28,700 customers with
annual volumes of 20.6 million gallons. Approximately 64% of the propane
segment's retail sales are made to residential customers and 36% of retail sales
are made to commercial and agricultural customers. Sales to residential
customers in fiscal year 2000 accounted for approximately 73% of propane gross
profit on propane sales, reflecting the higher-margin nature of this segment of
the market. In excess of 95% of the retail propane customers lease their tanks
from the propane segment. In most states, due to fire safety regulations, a
leased tank may only be refilled by the propane distributor that owns that tank.
The inconvenience associated with switching tanks greatly reduces a propane
customer's tendency to change distributors. Over half of the propane segment's
residential customers receive their propane supply under an automatic delivery
system. The amount delivered is based on weather conditions and historical
consumption patterns. Thus, the automatic delivery system eliminates the
customer's need to make an affirmative purchase decision. In addition, the
propane segment provides emergency service 24 hours a day, seven days a week, 52
weeks a year.

Competition
-----------

The propane industry is highly competitive; however, long-standing customer
relationships are typical of the retail propane industry. The ability to compete
effectively within the propane industry depends on the reliability of service,
responsiveness to customers and the ability to maintain competitive prices. The
propane segment believes that its superior service capabilities and customer
responsiveness differentiates it from many of its competitors. Branch operations
offer emergency service 24 hours a day, seven days a week, 52 weeks a year.
Competition in the propane industry is highly fragmented and generally occurs on
a local basis with other large full-service multi-state propane marketers,
smaller local independent marketers and farm cooperatives. Based on industry
publications, the Partnership believes that the ten largest multi-state
marketers, including its propane segment, account for approximately 35% of the
total retail sales of propane in the United States, and that no single marketer
has a greater than 10% share of the total retail market in the United States.
Most of the propane segment's branches compete with five or more marketers or
distributors. The principal factors influencing competition among propane
marketers are price and service. Each retail distribution outlet operates in its
own competitive environment. While retail marketers locate in close proximity to
customers to lower the cost of providing service, the typical retail
distribution outlet has an effective marketing radius of approximately 35 miles.

In addition, propane competes primarily with electricity, natural gas and fuel
oil as an energy source on the basis of price, availability and portability. In
certain parts of the country, propane is generally less expensive to use than
electricity for space heating, water heating, clothes drying and cooking.
Propane is generally more expensive than natural gas, but serves as an
alternative to natural gas in rural and suburban areas where natural gas is
unavailable or portability of product is required. The expansion of natural gas
into traditional propane markets has historically been inhibited by the capital
costs required to expand distribution and pipeline systems. Although the
extension of natural gas pipelines tends to displace propane distribution in the
areas affected, the Partnership believes that new opportunities for propane
sales arise as more geographically remote areas are developed. Although propane
is similar to fuel oil in space heating and water heating applications, as well
as in market demand and price, propane and fuel oil have generally developed
their own distinct geographic markets. Because furnaces that burn propane will
not operate on fuel oil, a conversion from one fuel to the other requires the
installation of new equipment.

                                       7
<PAGE>

Home Heating Oil

Operations
----------

The Partnership's heating oil segment serves approximately 350,000 customers in
the Northeast and Mid-Atlantic states. In addition to selling home heating oil,
the heating oil segment installs and repairs heating equipment. To a limited
extent, it also markets other petroleum products. During the twelve months ended
September 30, 2000, the total sales in the heating oil segment were comprised of
approximately, 78% from sales of home heating oil; 16% from the installation and
repair of heating equipment; and 6% from the sale of other petroleum products.
The heating oil segment provides home heating equipment repair service 24 hours
a day, seven days a week, 52 weeks a year, generally within four hours of a
request. It also regularly provides various service incentives to obtain and
retain customers. The heating oil segment is consolidating its operations under
one brand name, which it is building by employing an upgraded, professionally
trained and managed sales force, together with a professionally developed
marketing campaign, including radio and print advertising media. The heating oil
segment has a nationwide toll free telephone number, 1-800-OIL-HEAT, which it
believes helps build customer awareness and brand identity.

As a result of a major strategic study, in 1996 the heating oil segment began to
implement an operational restructuring program designed to take advantage of its
size within the home heating oil industry. This program involves regionalization
of its home heating oil operations into three profit centers, which allows it to
operate more efficiently. In addition, this program enables the heating oil
segment to access developments in communication and computer technology that are
in use by other large distribution businesses, but are generally not used by
other retail heating oil companies. This program is designed to reduce operating
costs, improve customer service and establish a brand image among heating oil
consumers.

As part of the implementation of this operational restructuring program, in
April 1996 the heating oil segment opened a regional customer service center on
Long Island, New York. This state-of-the-art facility currently conducts all
activities that interface with its approximately 110,000 Long Island and New
York City home heating oil customers, including sales, customer service, credit
and accounting. Since the establishment of this customer service center, eight
full-function branches were consolidated into four strategically located
delivery and service depots to serve the heating oil segment's customers more
efficiently. Furthermore, in keeping with the focus of its operating strategy,
late in 1997 the heating oil segment continued to reorganize select branch and
corporate responsibilities in order to eliminate redundant functions and
regionalize responsibilities where they can best serve customers and the home
heating oil business.

Customers
---------

The heating oil segment currently serves approximately 350,000 customers in the
following 26 markets:

<TABLE>
<CAPTION>
New York                                      Massachusetts                                New Jersey
<S>                                           <C>                                          <C>
Bronx, Queens and Kings Counties              Boston (Metropolitan)                        Camden
Dutchess County                               Northeastern Massachusetts                   Lakewood
Staten Island                                  (Centered in Lawrence)                      Newark (Metropolitan)
Eastern Long Island                           Worcester                                    North Brunswick
Western Long Island                                                                        Rockaway
                                                                                           Trenton

Connecticut                                   Pennsylvania                                 Rhode Island
Bridgeport--New Haven                         Allentown                                    Providence
Litchfield County                             Berks County                                 Newport
Southern Fairfield County                      (Centered in Reading)
(Metropolitan)                                Bucks County                                 Maryland/Virginia/D.C.
                                               (Centered in Southampton)                   Arlington
                                              Lebanon County                               Baltimore
                                               (Centered in Palmyra)                       Washington, D.C. (Metropolitan)
</TABLE>

                                       8
<PAGE>

During the twelve months ended September 30, 2000, approximately 87% of the
heating oil segment's heating oil sales were made to homeowners, with the
remainder to industrial, commercial and institutional customers. In fiscal 2000,
the heating oil segment experienced net account growth of approximately 1.3%,
representing gains of approximately 13.8% and gross losses of 12.5%. Attrition
for the heating oil segment for fiscal 1999 was 2.3%. Attrition of existing
customers had averaged approximately 5% per year over the five years through
1998. Gross customer losses are the result of various factors, including
customer relocation, price, natural gas conversions and credit problems.
Customer gains are a result of marketing and service programs and other
incentives. While the heating oil segment often loses customers when they move
from their homes, it is able to retain a majority of these homes by obtaining
the new home purchaser as a customer. Approximately 90% of the heating oil
customers receive their home heating oil under an automatic delivery system
without the customer having to make an affirmative purchase decision. These
deliveries are scheduled by computer, based upon each customer's historical
consumption patterns and prevailing weather conditions. The heating oil segment
delivers home heating oil approximately six times during the year to the average
customer. The segment's practice is to bill customers promptly after delivery.
In addition, approximately 36% of its customers are on a budget payment plan,
whereby their estimated annual oil purchases and service contract are paid for
in a series of equal monthly payments over a twelve month period.

Approximately 45% of the heating oil segment's total sales are made to
individual customers under an agreement pre-establishing the maximum sales price
(or "capped price") of oil over a twelve month period. The maximum price at
which oil is sold to these individual customers is renegotiated each year in
light of current market conditions. The heating oil segment currently enters
into forward purchase contracts, futures contracts, and option contracts to
hedge a substantial portion of the oil it sells to these capped-price customers.
This practice permits the heating oil segment to purchase oil at a fixed price
in advance of its obligations to supply that oil, while hedging to some extent
its exposure to cost fluctuations. Should events occur after a capped-sales
price is established that increases the cost of oil above the amount
anticipated, margins for the capped-price customers whose oil was not purchased
in advance would be lower than expected, while those customers whose oil was
purchased in advance would be unaffected. Conversely, should events occur during
this period that decrease the cost of oil below the amount anticipated, margins
for the capped-price customers whose oil was purchased in advance could be lower
than expected, while margins for those customers whose oil was not purchased in
advance would be unaffected or higher than expected.

Competition
-----------

The heating oil segment competes with heating oil distributors offering a broad
range of services and prices, from full service distributors, like itself, to
those offering delivery only. Long-standing customer relationships are typical
in the industry. Like most companies in the home heating oil business, the
heating oil segment provides home heating equipment repair service on a 24-hour
a day basis. This tends to build customer loyalty. As a result of the factors
noted above, among others, it may be difficult for the heating oil segment to
acquire new retail customers, other than through acquisitions. In addition, in
some instances homeowners have formed buying cooperatives that seek to purchase
fuel oil from distributors at a price lower than individual customers are
otherwise able to obtain. The heating oil segment also competes for retail
customers with suppliers of alternative energy products, principally natural
gas, propane, and electricity. The rate of conversion from the use of home
heating oil to natural gas is primarily affected by the relative prices of the
two products and the cost of replacing an oil fired heating system with one that
uses natural gas. The heating oil segment believes that approximately 1% of its
home heating oil customer base annually converts from home heating oil to
natural gas.

                                       9
<PAGE>

Natural Gas and Electricity

Operations
----------

The Partnership's natural gas and electricity segment serves approximately
110,000 customers in five states and the District of Columbia. In addition to
selling natural gas and electricity, this segment has also begun to market
equipment service contracts in selected markets. Since its acquisition by the
Partnership on April 7, 2000 through September 30, 2000, the total sales in the
natural gas and electricity segment were comprised of 68% from sales of
approximately 9.7 million therms of natural gas and 32% from sales of
approximately 111.4 million kilowatts of electricity.

Customers
---------

The natural gas and electricity segment currently serves 110,000 customers in
the following markets:

<TABLE>
<CAPTION>
       New York                              New Jersey                       Maryland
       --------                              ----------                       --------
       <S>                                   <C>                              <C>
       Buffalo                               Central New Jersey               Baltimore
       Orange County                         Southern New Jersey
       Rockland County                                                        Washington, D.C.
                                                                              ----------------
       Westchester County                    Florida
       New York City                         -------

                                             Southern Florida                 Pennsylvania
                                                                              ------------

                                                                              Philadelphia
</TABLE>

For fiscal 2000, approximately 98% of the natural gas and electricity segment's
sales were made to homeowners, with the remainder to industrial and commercial
customers. Since its acquisition by the Partnership, this segment has added a
net 30,000 customers. New accounts are obtained through the utilization of a
third party marketing firm on a commission basis. Approximately 60% of its
customers are on a budget payment plan, whereby their estimated purchases are
paid for in a series of equal monthly payments over a twelve month period.

Competition
-----------

The natural gas and electricity segment's primary competition is with the local
utility company. In many markets, however, the utility prefers that a customer
buys from a independent reseller in that the utility tariff structure is
commodity neutral. The utility makes its money by transporting the commodity and
not from the sale of the commodity. Other competitors fall into two distinct
categories; national or local marketing companies. National marketing companies
are generally pipeline, producer, or utility subsidiaries. These companies have
mainly focused their attention on large commercial and industrial customers.
Local companies typically only service one or two utility markets. These
companies generally do not have the ability to offer equipment service and maybe
capital constrained.

                                       10
<PAGE>

Suppliers and Supply Arrangements
---------------------------------

Propane Segment
---------------

The propane segment obtains propane from over 13 sources, all of which are
domestic or Canadian companies, including BP Canada Energy Marketing Corp.,
Dynegy Inc., Ferrell North America, Gas Supply Resources, Inc., Kinetic
Resources, U.S.A., Marathon Oil Company, Markwest Hydrocarbons, ExxonMobil LPG,
Sea-3 Inc., Shell Canada Limited, Sun Mid America Marketing & Refining, Tejas
Natural Gas Liquids LLC, and Tosco Refining L.P. Supplies from these sources
have traditionally been readily available, although there is no assurance that
supplies of propane will be readily available in the future.

Substantially all of the propane supply for the propane segment's Northeast
retail operations is purchased under annual or longer term supply contracts that
generally provide for pricing in accordance with market prices at the time of
delivery. Some of the contracts provide for minimum and maximum amounts of
propane to be purchased. During the year ended September 30, 2000, none of the
propane segment's Northeast suppliers accounted for more than 10% of its
Northeast volume. The propane segment typically supplies its Midwest retail and
wholesale operations by a combination of: (1) spot purchases from suppliers at
Mont Belvieu, Texas, that are transported by pipeline to the propane segment's
21 million gallon underground storage facility in Seymour, Indiana, and then
delivered to the Midwest branches; and (2) purchases from a number of Midwest
refineries that are transported by truck to the branches either directly or via
the Seymour facility. Most of the refinery purchases are purchased under market
based contracts. The Seymour facility is located on the TEPPCO Partners, L.P.
pipeline system. The pipeline is connected to the Mont Belvieu, Texas storage
facilities and is one of the largest conduits of supply for the U.S. propane
industry. The Seymour facility allows the propane segment to buy and store large
quantities of propane during periods of low demand that generally occur during
the summer months. The Partnership believes that this ability allows it to
achieve cost savings to an extent generally not available to competitors in the
propane segment's Midwest markets. The Partnership believes that its
diversification of suppliers will enable it to purchase all of its supply needs
at market prices if supplies are interrupted from any of these sources without a
material disruption of its operations.

Heating Oil Segment
-------------------

The heating oil segment obtains fuel oil in either barge, pipeline, or truckload
quantities, and has contracts with over 80 terminals for the right to
temporarily store heating oil at facilities it does not own. Purchases are made
under supply contracts or on the spot market. The home heating oil segment has
market price based contracts for substantially all of its petroleum requirements
with 12 different suppliers, the majority of which have significant domestic
sources for their product, and many of which have been suppliers for over 10
years. The segment's current suppliers are: Amerada Hess Corporation; Citgo
Petroleum Corp.; Coastal New York; Equiva Trading Co., Global Companies, LLC;
Transmontaigne Product Services Inc.; Mieco, Inc.; Mobil Oil Corporation;
Northville Industries, Sprague Energy; Sun Oil Company; and Tosco Refining Co.
Supply contracts typically have terms of 12 months. All of the supply contracts
provide for maximum and in some cases minimum quantities. In most cases the
supply contracts do not establish in advance the price of fuel oil. This price,
like the price to most of its home heating oil customers, is based upon market
prices at the time of delivery. The Partnership believes that its policy of
contracting for substantially all of its supply needs with diverse and reliable
sources will enable it to obtain sufficient product should unforeseen shortages
develop in worldwide supplies. The Partnership also believes that relations with
its current suppliers are satisfactory.

Natural Gas and Electricity Operations
--------------------------------------

The TG&E segment purchases natural gas at either the well-head, the pipeline
pooling point or delivered to the city gate. Purchases are at market based
pricing with 11 different suppliers. The segment's current suppliers are:
Amerada Hess Corporation, Con Edison Solutions, Inc., Crown Energy Services,
Inc., Duke Energy Trading & Marketing, Inc., Equitable Energy, LLC., Niagara
Mohawk Energy Marketing, Inc., Perry Gas Companies, Inc., Sempra Fuel, Scana
Energy Marketing, Inc., Southern Companies, Inc., and Sprague Energy Corp. All
of the segment's electricity requirements are purchased at market from Niagara
Mohawk Energy Marketing, Inc.

                                       11
<PAGE>

Employees

As of September 30, 2000, the propane segment had 723 full-time employees, of
whom 49 were employed by the corporate office and 674 were located in branch
offices. Of these 674 branch employees, 232 were managerial and administrative;
304 were engaged in transportation and storage and 138 were engaged in field
servicing. Approximately 67 of the segment's employees are represented by six
different local chapters of labor unions. Management believes that its relations
with both its union and non-union employees are satisfactory.

As of September 30, 2000, the home heating oil segment had 1,873 employees, of
whom 523 were office, clerical and customer service personnel; 705 were heating
equipment repairmen; 263 were oil truck drivers and mechanics; 197 were
management and staff and 185 were employed in sales. In addition, approximately
330 seasonal employees are rehired annually to support the requirements of the
heating season. The heating oil segment has approximately 750 employees which
are represented by 16 different local chapters of labor unions. Management
believes that its relations with both its union and non-union employees are
satisfactory.

As of September 30, 2000, the TG&E segment had 53 employees, of whom 46 were
office, clerical and customer service personnel; 5 were management and staff and
2 were employed in sales.

Government Regulations

The Partnership is subject to various federal, state and local environmental,
health and safety laws and regulations. Generally, these laws impose limitations
on the discharge of pollutants and establish standards for the handling of solid
and hazardous wastes. These laws include the Resource Conservation and Recovery
Act, the Comprehensive Environmental Response, Compensation and Liability Act,
the Clean Air Act, the Occupational Safety and Health Act, the Emergency
Planning and Community Right to Know Act, the Clean Water Act and comparable
state statutes. CERCLA, also known as the "Superfund" law, imposes joint and
several liability without regard to fault or the legality of the original
conduct on certain classes of persons that are considered to have contributed to
the release or threatened release of a hazardous substance into the environment.
Propane is not a hazardous substance within the meaning of CERCLA. These laws
and regulations could result in civil or criminal penalties in cases of
non-compliance or impose liability for remediation costs. To date, the
Partnership has not been named as a party to any litigation in which it is
alleged to have violated or otherwise incurred liability under any of the above
laws and regulations.

For acquisitions that involve the purchase of real estate, the Partnership
conducts a due diligence investigation to attempt to determine whether any
substance has been sold from, or stored on, any of that real estate prior to its
purchase. This due diligence includes questioning the seller, obtaining
representations and warranties concerning the seller's compliance with
environmental laws and performing site assessments. During this due diligence
the Partnership's employees, and, in certain cases, independent environmental
consulting firms review historical records and databases and conduct physical
investigations of the property to look for evidence of hazardous substances,
compliance violations and the existence of underground storage tanks.

Future developments, such as stricter environmental, health or safety laws and
regulations thereunder, could affect Partnership operations. It is not
anticipated that the Partnership's compliance with or liabilities under
environmental, health and safety laws and regulations, including CERCLA, will
have a material adverse effect on the Partnership. To the extent that there are
any environmental liabilities unknown to the Partnership or environmental,
health or safety laws or regulations are made more stringent, there can be no
assurance that the Partnership's results of operations will not be materially
and adversely affected.

Total Gas & Electric is an authorized supplier of electric and/or gas in the
states of Pennsylvania, New York, New Jersey, Maryland, Connecticut and Florida
which allow consumers to choose their electric and/or gas supplier. TG&E is
either licensed and/or registered to serve as an alternative competitive
supplier in each state. The incumbent utility continues to serve as the
transmission and distribution company which delivers the commodity, and in many
instances continues to send customers the monthly bill for the energy delivered.
However, TG&E offers an alternative for the commodity portion of the consumers
bill. As an alternative supplier, TG&E is subject to oversight by state public
utility commissions, including licensing or registration requirements,
information regarding rates and conditions of service, and in some instances
annual filing requirements regarding numbers of customers, numbers of
complaints, energy portfolio components, and other information relative to the
company's conduct of operations.

                                       12
<PAGE>

                              ITEM 2. PROPERTIES

Propane Segment
---------------

As of September 30, 2000, the propane segment owned 74 of its 91 branch
locations and 45 of its 56 satellite storage facilities and leased the balance.
In addition, it owns the Seymour facility, in which it stores propane for itself
and third parties. The propane segment's corporate headquarters are located in
Stamford, Connecticut and is leased.

The transportation of propane requires specialized equipment. The trucks used
for this purpose carry specialized steel tanks that maintain the propane in a
liquefied state. As of September 30, 2000, Star Gas Propane had a fleet of 13
tractors, 30 transport trailers, 527 bobtail and rack trucks and 389 other
service and pick-up trucks, the majority of which are owned.

As of September 30, 2000, the propane segment owned approximately 297 bulk
storage tanks with typical capacities of 12,000 to 30,000 gallons; 251,000
stationary customer storage tanks with typical capacities of 24 to 1,000
gallons; and 35,000 portable propane cylinders with typical capacities of 5 to
24 gallons. The Partnership's obligations under its borrowings are secured by
liens and mortgages on all of its real and personal property.

Heating Oil Segment
-------------------

The heating oil segment provides services to its customers from 24
branches/depots and 9 satellites, 9 of which are owned and 24 of which are
leased, in 26 marketing areas in the Northeast and Mid-Atlantic Regions of the
United States. The heating oil's corporate headquarters is located in Stamford,
Connecticut and is leased. As of September 30, 2000, the heating oil segment had
a fleet of 727 truck and transport vehicles and 889 services vans. The
Partnership's obligations under its borrowings are secured by liens and
mortgages on all of its real and personal property.

TG&E Segment
------------

The natural gas and electric reseller segment provides services to its customers
from its Fort Lauderdale, Florida corporate headquarters which is leased. This
segment does not have a significant number of vehicles.

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

                    ITEM 3. LEGAL PROCEEDINGS - LITIGATION

Litigation
----------

The Partnership's operations are subject to all operating hazards and risks
normally incidental to handling, storing and transporting and otherwise
providing for use by consumers of combustible liquids such as propane and home
heating oil. As a result, at any given time the Partnership is a defendant in
various legal proceedings and litigation arising in the ordinary course of
business. The Partnership maintains insurance policies with insurers in amounts
and with coverages and deductibles as the general partner believes are
reasonable and prudent. However, the Partnership cannot assure that this
insurance will be adequate to protect it from all material expenses related to
potential future claims for personal and property damage or that these levels of
insurance will be available in the future at economical prices. In addition, the
occurrence of an explosion may have an adverse effect on the public's desire to
use the Partnership's products.

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

No matters were submitted to a vote of the security holders of the Partnership
during the fourth quarter ended September 30, 2000.

                                       13
<PAGE>

                                    PART II
           ITEM 5. MARKET FOR REGISTRANT'S UNITS AND RELATED MATTERS

The common units, representing common limited partner interests in the
Partnership, are listed and traded on the New York Stock Exchange, Inc. ("NYSE")
under the symbol "SGU". The common units began trading on the NYSE on May 29,
1998. From December 20, 1995 through May 28, 1998, the common units were traded
on the NASDAQ National Market under the symbol "SGASZ."

The Partnership's senior subordinated units began trading on the NYSE on March
29, 1999 under the symbol "SGH." The Senior Subordinated Units became eligible
to receive distributions in February 2000, and the first distribution was made
in August 2000. The following tables set forth the high and low closing price
ranges for the common units, the senior subordinated units and the cash
distribution declared per common unit and senior subordinated unit for the
fiscal years indicated.

<TABLE>
<CAPTION>
                                            SGU - Common Unit Price Range                          Distributions
                                            -----------------------------
                                        High                              Low                    Declared Per Unit
                                --------------------             --------------------            -----------------
Three Months Ending             1999            2000             1999            2000            1999            2000
                                ----            ----             ----            ----            ----            ----
<S>                           <C>             <C>              <C>             <C>             <C>             <C>
December 31,                  $21.75          $16.88           $14.50          $12.88          $0.550          $0.575
March 31,                     $19.88          $15.88           $13.75          $13.25          $0.550          $0.575
June 30,                      $17.25          $16.00           $13.94          $13.00          $0.575          $0.575
September 30,                 $17.94          $17.94           $16.00          $15.19          $0.575          $0.575
</TABLE>

<TABLE>
<CAPTION>
                                     SGH - Senior Subordinated Unit Price Range                     Distributions
                                     ------------------------------------------
                                         High                             Low                     Declared Per Unit
                                 --------------------             --------------------            -----------------
Three Months Ending              1999            2000             1999            2000           1999            2000
                                 ----            ----             ----            ----           ----            ----
<S>                            <C>              <C>             <C>              <C>                <C>        <C>
December 31,                        -           $9.00                -           $4.88              -               -
March 31,                      $8.125           $6.12           $7.000           $4.38              -               -
June 30,                       $8.875           $6.75           $6.125           $4.50              -               -
September 30,                  $9.625           $9.19           $8.500           $6.06              -          $0.250
</TABLE>


As of September 30, 2000, there were approximately 618 holders of record of the
Partnership's common units, and approximately 106 holders of record of the
Partnership's senior subordinated units.

There is no established public trading market for the Partnership's 345,364
Junior Subordinated Units and 325,729 general partner units.

In general, the Partnership distributes to its partners on a quarterly basis,
all of its Available Cash in the manner described below. Available Cash is
defined for any of the Partnership's fiscal quarters, as all cash on hand at the
end of that quarter, less the amount of cash reserves that are necessary or
appropriate in the reasonable discretion of the general partner to (i) provide
for the proper conduct of the business; (ii) comply with applicable law, any of
its debt instruments or other agreements; or (iii) provide funds for
distributions to the common unitholders and the senior subordinated unitholders
during the next four quarters, in some circumstances.

The general partner may not establish cash reserves for distributions to the
senior subordinated units unless the general partner has determined that the
establishment of reserves will not prevent it from distributing the minimum
quarterly distribution on all common units and any common unit arrearages for
the next four quarters. The full definition of Available Cash is set forth in
the Agreement of Limited Partnership of the Partnership. The information
concerning restrictions on distributions required in this section is
incorporated herein by reference to the Partnership's Consolidated Financial
Statements which begin on page F-1 of this Form 10-K.

                                       14
<PAGE>

           ITEM 6. SELECTED HISTORICAL FINANCIAL AND OPERATING DATA

The following table sets forth selected historical and other data of the
Partnership and the Predecessor Company and should be read in conjunction with
the more detailed financial statements included elsewhere in this report. See
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.

The Selected Financial Data is derived from the financial information of the
Partnership and should be read in conjunction therewith.

<TABLE>
<CAPTION>
(in thousands, except per unit data)                                         Partnership/Predecessor Company
                                                                             -------------------------------
                                                                              Fiscal Year Ended September 30,
                                                      ---------------------------------------------------------------------------
<S>                                                   <C>               <C>             <C>           <C>             <C>
Statement of Operations Data:                           1996/(a)/            1997           1998           1999/(e)/      2000
                                                        ----                 ----           ----           -------        ----
Sales                                                 $   119,634        $   135,159    $   111,685    $   224,020    $   744,664
Costs and expenses:
     Cost of sales                                         58,557             72,211         49,498        131,649        501,589
     Delivery and branch expenses                          34,750             36,427         37,216         86,489        156,862
     General and administrative expenses                    6,457              6,818          6,065         11,634         20,005
     TG&E customer acquisition expense                          -                  -              -              -          2,082
     Unit compensation expense                                  -                  -              -              -            649
     Net gain (loss) on sales of assets                      (260)              (295)          (271)           (83)           143
     Depreciation and amortization                          9,680             10,242         11,462         22,713         34,708
                                                      -----------        -----------    -----------    -----------    -----------
Operating income (loss)                                     9,930              9,166          7,173        (28,548)        28,912
     Interest expense, net                                  7,124              6,966          7,927         15,435         26,784
     Amortization of debt issuance costs                      128                163            176            347            534
                                                      -----------        -----------    -----------    -----------    -----------
Income (loss) before income taxes                           2,678              2,037           (930)       (44,330)         1,594
     Minority interest in net loss of TG&E                      -                  -              -              -            251
     Income tax expense (benefit)                              85                 25             25        (14,780)           492
                                                      -----------        -----------    -----------    -----------    -----------
     Net income (loss)                                $     2,593        $     2,012    $      (955)   $   (29,550)   $     1,353
                                                      ===========        ===========    ============   ============   ===========
General Partner's interest in net income (loss)                                   40            (19)          (587)            24
                                                                         -----------    -----------    -----------    -----------
Limited Partner's interest in net income (loss)                          $     1,972    $      (936)   $   (28,963)   $     1,329
                                                                         ===========    ===========    ===========    ===========
     Net income (loss) per unit /(b)/                 $      0.11/(d)/   $      0.37    $     (0.16)   $     (2.53)   $      0.07
     Cash distribution declared per common unit       $      1.17/(d)/   $      2.20    $      2.20    $      2.25    $      2.30
     Cash distribution declared per senior sub. unit            -                  -              -              -    $      0.25
Weighted average number of limited partner units            5,271              5,271          6,035         11,447         18,288

Balance Sheet Data (end of period):
     Current assets                                   $    17,842        $    14,165    $    17,947    $    86,868    $   126,990
     Total assets                                         156,913            147,469        179,607        539,344        618,976
     Long-term debt                                        85,000             85,000        104,308        276,638        310,414
     Partners' Capital                                     61,398             51,578         57,347        150,176        139,178

Summary Cash Flow Data:
     Net Cash provided by operating activities        $     9,982        $    18,964    $     9,264    $    10,795    $    20,364
     Net Cash used in investing activities                 (6,954)            (4,905)       (13,276)        (2,977)       (65,172)
     Net Cash provided by (used in) financing              (2,649)           (14,276)         4,238         (4,441)        51,226
     activities

Other Data:
     Earnings before interest, taxes, depreciation
      and amortization, TG&E customer acquisition
      expense and unit compensation expense, less
      net gain (loss) on sales of equipment
      (EBITDA) /(c)/                                  $    19,870        $    19,703    $    18,906    $    (5,752)   $    66,210
     Retail propane gallons sold                           96,294             94,893         98,870         99,457        107,557
     Heating oil gallons sold                                   -                  -              -         74,039        345,684
</TABLE>

                                       15
<PAGE>

ITEM 6. SELECTED HISTORICAL FINANCIAL AND OPERATING DATA (Continued)

(a)    Reflects the results of operations of the Predecessor Company for the
       period October 1, 1995 through December 20, 1995 and the results of the
       Partnership from December 20, 1995 through September 30, 1996. The
       operating results for the year ended September 30, 1996 were combined to
       facilitate an analysis of the fundamental operating data.

(b)    Net income (loss) per unit is computed by dividing the limited partners'
       interest in net income (loss) by the weighted average number of limited
       partner units outstanding.

(c)    EBITDA is defined as operating income (loss) plus depreciation and
       amortization, TG&E customer acquisition expense and unit compensation
       expense, less net gain (loss) on sales of assets. EBITDA should not be
       considered as an alternative to net income (as an indicator of operating
       performance) or as an alternative to cash flow (as a measure of liquidity
       or ability to service debt obligations), but provides additional
       information for evaluating the Partnership's ability to make the Minimum
       Quarterly Distribution. The definition of "EBITDA" set forth above may be
       different from that used by other companies.

(d)    Represents net income per unit and cash distributions paid per unit for
       the period December 20, 1995 through September 30, 1996.

(e)    The results of operations for the year ended September 30, 1999 include
       Petro's results of operations from March 26, 1999. Since Petro was
       acquired after the heating season, the results for the year ended
       September 30, 1999 include expected third and fourth fiscal quarters
       losses but do not include the profits from the heating season.
       Accordingly, results of operations for the year ended September 30, 1999
       presented are not indicative of the results to be expected for a full
       year.

                                       16
<PAGE>

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

Statement Regarding Forward-Looking Disclosure

This Report includes "forward-looking statements" within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act which represent
the Partnership's expectations or beliefs concerning future events that involve
risks and uncertainties, including those associated with the effect of weather
conditions on the Partnership's financial performance, the price and supply of
home heating oil, propane, natural gas and electricity and the ability of the
Partnership to obtain new accounts and retain existing accounts. All statements
other than statements of historical facts included in this Report including,
without limitation, the statements under "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business" and elsewhere
herein, are forward-looking statements. Although the Partnership believes that
the expectations reflected in such forward-looking statements are reasonable, it
can give no assurance that such expectations will prove to have been correct.
Important factors that could cause actual results to differ materially from the
Partnership's expectations ("Cautionary Statements") are disclosed in this
Report, including without limitation and in conjunction with the forward-looking
statements included in this report. All subsequent written and oral
forward-looking statements attributable to the Partnership or persons acting on
its behalf are expressly qualified in their entirety by the Cautionary
Statements.

Overview

In analyzing the financial results of the Partnership, the following matters
should be considered.

The Petro acquisition was made on March 26, 1999. Accordingly, the results of
operations for the year ended September 30, 2000 include Petro's results for the
entire year whereas the results for the previous fiscal year only include
Petro's results from March 26, 1999 Since Petro was acquired after the heating
season, the results for the year ended September 30, 1999 include expected third
and fourth fiscal quarters losses but do not include the profits from the
heating season. Accordingly, results of operations for the year ended September
30, 1999 presented are not indicative of the results to be expected for a full
year.

The Total Gas and Electric acquisition was made on April 7, 2000. Accordingly,
the results of operations for the year ended September 30, 2000 include TG&E's
results from April 7, 2000.

The primary use of heating oil, propane and natural gas is for space heating in
residential and commercial applications. As a result, weather conditions have a
significant impact on financial performance and should be considered when
analyzing changes in financial performance. In addition, gross margins vary
according to customer mix. For example, sales to residential customers generate
higher profit margins than sales to other customer groups, such as agricultural
customers. Accordingly, a change in customer mix can affect gross margins
without necessarily impacting total sales.

FISCAL YEAR ENDED SEPTEMBER 30, 2000
COMPARED TO FISCAL YEAR ENDED SEPTEMBER 30, 1999
------------------------------------------------


Volume

For fiscal 2000, retail volume of propane and heating oil increased 279.7
million gallons, or 161.2%, to 453.2 million gallons, as compared to 173.5
million gallons for fiscal 1999. This increase was due to 271.6 million gallons
of additional volume provided by the heating oil segment and a 8.1 million
gallon increase in the propane segment. While retail propane volume was
favorably impacted by acquisitions and internal growth, a 2.5 million gallon
reduction in agriculture sales and slightly warmer temperatures negatively
impacted volumes. The abnormal weather conditions during the first fiscal
quarter resulted in a very dry fall harvest, which significantly reduced propane
demand for crop drying. In the Partnership's propane operating areas,
temperatures for fiscal 2000 were 0.6% warmer than in the prior year's
comparable period and 11.4% warmer than normal.

                                       17
<PAGE>

Sales

For fiscal 2000, sales increased $520.7 million, or 232.2%, to $744.7 million,
as compared to $224.0 million for fiscal 1999. This increase was attributable to
$454.5 million additional sales provided by the heating oil segment, $23.6
million of TG&E sales and a $42.6 million increase in propane sales. Propane
sales increased due to higher selling prices in response to higher propane
supply costs and from the increased retail volume. Sales in the propane division
also rose by $2.6 million due to an increased focus on the sales of rationally
related products.

Cost of Product

For fiscal 2000, cost of product increased $303.0 million, or 374.6%, to $383.8
million, as compared to $80.8 million for fiscal 1999. This increase was due to
$247.0 million of additional costs attributable to the heating oil segment,
$22.0 million of TG&E cost of product and for higher propane supply cost of
$34.0 million. While both propane selling prices and propane supply costs
increased on a per gallon basis, the increase in selling prices was more than
the increase in supply costs, which resulted in an increase in per gallon
margins.

Cost of Installation, Service and Appliances

For fiscal 2000, cost of installation, service and appliances increased $66.9
million, or 131.5%, to $117.8 million, as compared to $50.9 million for fiscal
1999. This increase was primarily due to $66.2 million of additional costs
relating to the heating oil segment's cost of installation and service.

Delivery and Branch Expenses

For fiscal 2000, delivery and branch expenses increased $70.4 million, or 81.4%,
to $156.9 million, as compared to $86.5 million for fiscal 1999. This increase
was due to $67.4 million of additional heating oil operating costs and $3.0
million of additional operating costs for the propane segment. The increase for
the propane segment was due to additional cost of acquired propane companies and
expenses related to the propane segment's tank set program, which has increased
same store residential volume by approximately 2%.

Depreciation and Amortization

For fiscal 2000, depreciation and amortization expenses increased $12.0 million,
or 52.8%, to $34.7 million, as compared to $22.7 million for fiscal 1999. This
increase was primarily due to $11.8 million of additional heating oil segment
depreciation and amortization.

General and Administrative Expenses

For fiscal 2000, general and administrative expenses increased $8.4 million, or
72.4%, to $20.0 million, as compared to $11.6 million for fiscal 1999. This
increase was due to the inclusion of an additional $4.3 million of general and
administrative expenses for the heating oil segment, $2.0 million of TG&E
general and administrative expenses, a $1.1 million increase in general and
administrative expenses at the Partnership level and a $1.0 million increase for
the propane segment. The increase in expenses at the Partnership level was
primarily due to a full year inclusion of expenses for the office of the chief
executive officer. The $1.0 million increase in general and administrative
expenses at the propane segment was largely due to an increase in acquisition
travel related expenditures as well as for normal inflationary increases.

TG&E Customer Acquisition Expense

For fiscal 2000, TG&E customer acquisition expense was $2.1 million. This TG&E
segment expense is for the cost of acquiring new accounts through the services
of a third party direct marketing company. Since its acquisition, TG&E added
approximately 50,000 new customers.

                                       18
<PAGE>

Unit Compensation Expense

For fiscal 2000, unit compensation expense was $0.6 million. This expense was
incurred under the Employee Unit Incentive Plans whereby certain employees and
directors were granted senior subordinated units as incentive for increased
efforts during employment and as an inducement to remain in the service of the
Partnership.

Interest Expense, net

For fiscal 2000, net interest expense increased $11.3 million, or 73.5%, to
$26.8 million, as compared to $15.4 million for fiscal 1999. This change was
primarily due to $9.9 million of additional interest expense at the heating oil
segment, $0.6 million of net interest expense for TG&E and additional interest
expense for the financing of the propane acquisitions.

Income Tax Expense (Benefit)

For fiscal 2000, income tax expense increased $15.3 million to $0.5 million, as
compared to an income tax benefit of $14.8 million for fiscal 1999. The change
was primarily due to $12.0 million of deferred tax benefits for the heating oil
segment and $2.9 million of deferred tax benefits at the propane segment level
for fiscal 1999. These tax benefits resulted from the deferred tax assets
generated by operating losses incurred in fiscal 1999 by the heating oil segment
and by losses incurred by a certain propane company subsidiary.

Net Income (Loss)

For fiscal 2000, net income increased $31.0 million, to $1.4 million, as
compared to a net loss of $29.6 million for fiscal 1999. Additional net income
provided by the heating oil segment was $35.4 million, TG&E incurred a $3.3
million net loss for the period, while a $1.2 million larger loss was incurred
at the partnership level for the full year inclusion of cost as previously
mentioned. The $0.2 million increase in net income for the propane segment was
due to the segment's acquisition program, internal growth and a per gallon
improvement in gross profit margins, offset by the reduction in deferred income
tax benefit.

Earnings before interest, taxes, depreciation and amortization, TG&E customer
acquisition expense and unit compensation expense, less net gain (loss) on sales
of equipment (EBITDA)

Earnings before interest, taxes, depreciation and amortization, TG&E customer
acquisition expense and unit compensation expense, less net gain (loss) on sales
of equipment (EBITDA) increased $72.0 million, to $66.2 million for fiscal 2000,
as compared to a negative EBITDA of $5.8 million for the prior fiscal year. This
increase was due to $69.6 million of additional EBITDA generated by the heating
oil segment, a $3.9 million increase in the propane segment, a $1.1 million
decrease in the EBITDA generated at the partnership level and $0.5 million of
negative EBITDA for TG&E. The increase in the propane segment was due to
additional EBITDA provided by propane acquisitions, propane internal growth and
higher per gallon propane gross profit margins. EBITDA should not be considered
as an alternative to net income (as an indicator of operating performance) or as
an alternative to cash flow (as a measure of liquidity or ability to service
debt obligations), but provides additional information for evaluating the
Partnership's ability to make the Minimum Quarterly Distribution. The definition
of "EBITDA" set forth above may be different from that used by other companies.

                                       19
<PAGE>

FISCAL YEAR ENDED SEPTEMBER 30, 1999
COMPARED TO FISCAL YEAR ENDED SEPTEMBER 30, 1998
------------------------------------------------

Volume

Retail volume of propane and heating oil increased 74.6 million gallons, or
75.5%, to 173.5 million gallons for fiscal 1999, as compared to 98.9 million
gallons for fiscal 1998. This increase was due to 74.0 million gallons of
additional volume provided by the heating oil segment from March 26, 1999 to
September 30, 1999. Retail propane was 99.5 million gallons for the year ended
September 30, 1999, 0.6 million gallons more than the prior year. While retail
propane volume increased due to acquisitions, a residential internal growth rate
of 4.5% and slightly colder temperatures, these positive impacts aggregating 7.2
million gallons were offset by a 6.6 million decrease in agricultural volume.
The abnormal weather conditions during the first fiscal quarter resulted in a
very dry fall harvest, which caused propane demand for crop drying to be at its
lowest level since 1991. In the Partnership's propane operating areas,
temperatures for the year ending September 30, 1999, were 2.1% colder than in
the prior year's comparable period and 10.1% warmer than normal.

Sales

Sales increased $112.3 million, or 100.6%, to $224.0 million for fiscal 1999, as
compared to $111.7 million for fiscal 1998. This increase was attributable to
$116.4 million of additional sales provided by the heating oil segment, which
were partially offset by a $4.1 million decline in the propane segment. Propane
sales declined due to lower agricultural sales and lower selling prices in
response to a decline in propane supply costs. This decline was partially offset
by additional propane sales attributable to propane acquisitions, slightly
colder temperatures and propane segment internal growth.

Cost of Product

Cost of product increased $33.9 million, or 72.2%, to $80.8 million for fiscal
1999, as compared to $46.9 million for fiscal 1998. This increase was due to
$42.4 million of costs attributable to the heating oil segment, partially offset
by lower propane supply cost of $8.5 million. While both propane selling prices
and propane supply costs declined on a per gallon basis, the decline in selling
prices was less than the decline in supply costs, which resulted in an increase
in per gallon margins across all propane market segments.

Cost of Installation, Service and Appliances

Cost of installation, service and appliances increased $48.3 million, to $50.9
million for fiscal 1999, as compared to $2.6 million for fiscal 1998. This
increase was primarily due to $47.7 million of costs relating to the heating oil
segment.

Delivery and Branch Expenses

Delivery and branch expenses increased $49.3 million, or 132.4%, to $86.5
million for fiscal 1999, as compared to $37.2 million for fiscal 1998. This
increase was primarily due to the inclusion of $45.5 million of heating oil
operating costs. In addition, propane operating expenses increased by $3.8
million due to $ 1.4 million of operating expenses related to acquisitions, $1.1
million of costs associated with the segment's marketing initiatives and normal
expense increases of 2.8% or $1.3 million. The marketing initiative contributed
to the propane segment experiencing a residential internal growth rate of 4.5%.

Depreciation and Amortization

Depreciation and amortization expenses increased $11.2 million, or 98.2%, to
$22.7 million for fiscal 1999, as compared to $11.5 million for fiscal 1998.
This increase was primarily due to $10.5 million of heating oil segment
depreciation and amortization with the remainder attributable to the impact of
propane acquisitions and other fixed asset additions.

                                       20
<PAGE>

General and Administrative Expenses

General and administrative expenses increased $5.5 million, or 91.8%, to $11.6
million for fiscal 1999, as compared to $6.1 million for fiscal 1998. This
increase was primarily due to the inclusion of $4.9 million of heating oil
general and administrative expenses.

Interest Expense, net

Net interest expense increased $7.5 million, or 94.7%, to $15.4 million for
fiscal 1999, as compared to $7.9 million for fiscal 1998. This change was
primarily due to $7.1 million of interest expense incurred by the heating oil
segment and an increase in borrowings associated with propane acquisitions.

Income Tax Expense (Benefit)

For fiscal 1999, the income tax benefit was $14.8 million as compared to an
income tax expense of $0.02 million for fiscal 1998. This change was due to
$11.9 million of deferred tax benefits for the heating oil segment and $2.9
million of deferred tax benefits at the propane segment level. These tax
benefits resulted from the deferred tax asset generated by operating losses
incurred since the acquisition of the heating oil segment and by the losses
incurred by a certain propane company subsidiary.

Net Income (Loss)

The net loss was $29.6 million for fiscal 1999, as compared to a net loss of
$1.0 million for fiscal 1998. This change was due to the $29.9 million
seasonally related net loss from the heating oil segment, partially offset by
additional net income from the propane segment largely as a result of its $2.9
million deferred income tax benefit.

Earnings before interest, taxes, depreciation and amortization, TG&E customer
acquisition expense and unit compensation expense less net gain (loss) on sales
of equipment (EBITDA)

Earnings before interest, taxes, depreciation and amortization, TG&E customer
acquisition expense and unit compensation expense less net gain (loss) on sales
of equipment (EBITDA) decreased $24.7 million to a negative $5.8 million for
fiscal 1999, as compared to $18.9 million for fiscal 1998. This decrease was due
to the seasonally related EBITDA loss of $24.0 million incurred by the heating
oil segment. Since the heating oil division was acquired after the heating
season, the results for the year ended September 30, 1999 included expected
third and fourth fiscal quarter losses but do not include the profits from the
heating season. Accordingly, results of operations for the year ended September
30, 1999 presented are not indicative of the results to be expected for a full
year of operations on a combined basis. Propane segment EBITDA increased by $0.8
million as the volume growth provided by acquisitions and internal growth offset
the effects of the poor grain drying season and the increases in operating
expenses associated with acquisitions and internal marketing. EBITDA should not
be considered as an alternative to net income (as an indicator of operating
performance) or as an alternative to cash flow (as a measure of liquidity or
ability to service debt obligations), but provides additional information for
evaluating the Partnership's ability to make the Minimum Quarterly Distribution.
The definition of "EBITDA" set forth above may be different from that used by
other companies.

Liquidity and Capital Resources

During February 2000, the Partnership sold 1.7 million common units (including
0.2 million of overallotment units exercised), the net proceeds of which, net of
underwriter's discounts, commissions, and offering expenses was $22.6 million.
These funds combined with net cash provided by operating activities of $20.4
million, $28.7 million of long-term debt ($27.5 million of privately placed debt
and $1.2 million in acquisition notes), $48.2 million in net credit and
acquisition facility borrowings, $1.1 million in proceeds from the sale of fixed
assets, and $0.9 million in cash acquired in an acquisition amount to $121.9
million. Such funds were used for capital expenditures of $7.6 million,
acquisitions of $59.6 million, distributions of $35.6 million, debt repayment of
$9.4 million and other financing activities of $3.3 million. As a result of the
above activity, cash increased by $6.4 million to $10.9 million.

                                       21
<PAGE>

During July 2000, the holders of $11.2 million of the heating oil segment's 9.0%
Senior Notes exercised their option to extend the first sinking fund payment of
such notes by one year to October 1, 2001. In accordance with the terms of this
election, the interest rate on this portion of the Senior Notes has been
increased to 10.9%.

For fiscal 2001, the Partnership anticipates paying interest of approximately
$30.0 million and anticipates growth and maintenance capital additions of
approximately $15 million. In addition, the Partnership plans to pay
distributions on its units in accordance with the partnership agreement. The
Partnership also plans to pursue strategic acquisitions as part of its business
strategy and to prudently fund such acquisitions through a combination of debt
and equity. Based on its current cash position, bank credit availability and net
cash from operating activities, the Partnership expects to be able to meet all
of its obligations for fiscal 2001.

Accounting Principles Not Yet Adopted

In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standard No. 133 "Accounting for Derivative Instruments
and Hedging Activities" (SFAS No. 133) as amended by SFAS No. 137 and No. 138.
SFAS No. 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and hedging activities. It requires the recognition of all derivative
instruments as assets or liabilities in the Partnership's balance sheet and
measurement of those instruments at fair value and requires that a company
formally document, designate and assess the effectiveness of transactions that
receive hedge accounting.

The accounting treatment of changes in fair value is dependent upon whether or
not a derivative instrument is designated as a hedge and if so, the type of
hedge. For derivatives designated as Cash Flow Hedges, changes in fair value are
recognized in other comprehensive income until the hedged item is recognized in
earnings. For derivatives recognized as Fair Value Hedges, changes in fair value
are recognized in the income statement and are offset by related results of the
hedged item. Changes in the fair value of derivative instruments, which are not
designated as hedges are recognized in earnings as they occur.

The Partnership periodically hedges a portion of its oil, propane and natural
gas purchases through futures, options, collars and swap agreements. The purpose
of the hedges is to provide a measure of stability in the volatile environment
of oil, propane and natural gas prices and to manage its exposure to commodity
price risk under certain existing sales commitments.

The Partnership adopted SFAS No. 133 on October 1, 2000, and recorded its
derivatives at fair market value. As a result of adopting the Standard, the
Company recognized an approximate $1.5 million increase in net income and a
$10.5 million increase in additional other comprehensive income which will be
recorded as a cumulative effect of a change in accounting principle in the first
quarter ending December 31, 2000.

                                       22
<PAGE>

                                    ITEM 7A.
           QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Partnership is exposed to interest rate risk primarily through its bank
credit facilities. The Partnership utilizes these borrowings to meet its working
capital needs and also to fund the short-term needs of its acquisition program.

At September 30, 2000, the Partnership had outstanding borrowings of
approximately $67.3 million under its Bank Credit Facilities. In the event that
interest rates associated with these facilities were to increase 100 basis
points, the impact on future cash flows would be a $0.7 million annually.

The Partnership also selectively uses derivative financial instruments to manage
its exposure to market risk related to changes in the current and commodity
market prices of home heating oil, propane and natural gas. The Partnership does
not hold derivatives for trading purposes. The value of market sensitive
derivative instruments is subject to change as a result of movements in market
prices. Consistent with the nature of hedging activity, associated unrealized
gains and losses would be offset by corresponding decreases or increases in the
purchase price the Partnership would pay for the home heating oil, propane or
natural gas being hedged. Sensitivity analysis is a technique used to evaluate
the impact of hypothetical market value changes. Based on a hypothetical ten
percent increase in the cost of home heating oil, propane or natural gas at
September 30, 2000, the potential unrealized gain on the Partnership's hedging
activity would be increased by $8.2 million to an unrealized gain of $20.8
million; and conversely a hypothetical ten percent decrease in the cost of home
heating oil, propane or natural gas would be decreased by $8.3 million to an
unrealized gain of $4.3 million.

                                     ITEM 8.
                   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
                    SEE INDEX TO FINANCIAL STATEMENTS PAGE F-1

                                     ITEM 9.
                CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                      ACCOUNTING AND FINANCIAL DISCLOSURE
                                      NONE

                                       23
<PAGE>

                                    PART III
                                    ITEM 10.
               DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Partnership Management

Star Gas LLC is the general partner of the Partnership. The membership interests
in Star Gas LLC are owned by Audrey L. Sevin, Irik P. Sevin, and Hanseatic
Americas Inc. The General Partner manages and operates the activities of the
Partnership. Unitholders do not directly or indirectly participate in the
management or operation of the Partnership. The General Partner owes a fiduciary
duty to the Unitholders. However, the Partnership agreement contains provisions
that allow the General Partner to take into account the interest of parties
other than the Limited Partners' in resolving conflict of interest, thereby
limiting such fiduciary duties. Notwithstanding any limitation on obligations or
duties, the General Partner will be liable, as the general partner of the
Partnership, for all debts of the Partnership (to the extent not paid by the
Partnership), except to the extent that indebtedness or other obligations
incurred by the Partnership are made specifically non-recourse to the General
Partner.

William P. Nicoletti and I. Joseph Massoud, who are neither officers nor
employees of the General Partner nor directors, officers or employees of any
affiliate of the General Partner, have been appointed to serve on the Audit
Committee of the General Partner's Board of Directors. The Audit Committee has
the authority to review, at the request of the General Partner, specific matters
as to which the General Partner believes there may be a conflict of interest in
order to determine if the resolution of such conflict proposed by the General
Partner is fair and reasonable to the Partnership. Any matters approved by the
Audit Committee will be conclusively deemed fair and reasonable to the
Partnership, approved by all partners of the Partnership and not a breach by the
General Partner of any duties it may owe the Partnership or the holders of
Common Units. In addition, the Audit Committee reviews the external financial
reporting of the Partnership, recommends engagement of the Partnership's
independent accountants and reviews the Partnership's procedures for internal
auditing and the adequacy of the Partnership's internal accounting controls.
With respect to the additional matters, the Audit Committee may act on its own
initiative to question the General Partner and, absent the delegation of
specific authority by the entire Board of Directors, its recommendations will be
advisory.

As is commonly the case with publicly traded limited partnerships, the
Partnership does not directly employ any of the persons responsible for managing
or operating the Partnership. The management and workforce of Star Gas Propane
and certain employees of Petro manage and operate the Partnership's business as
officers of the General Partner and its Affiliates. See Item 1 -
Business--Employees.

                                       24
<PAGE>

Directors and Executive Officers of the General Partner

Directors are elected for one-year terms. The following table shows certain
information for directors and executive officers of the general partner:

<TABLE>
<CAPTION>
Name                                                         Age              Position with the General Partner
----                                                         ---              ---------------------------------
<S>                                                          <C>              <C>
Irik P. Sevin/(b)/.......................................     53              Chairman of the Board and Chief
                                                                                Executive Officer
William G. Powers, Jr....................................     47              Executive Vice President - Heating Oil
                                                                                and Member of the Office of President
Joseph P. Cavanaugh......................................     63              Executive Vice President - Propane
                                                                                and Member of the Office of President
George Leibowitz.........................................     63              Chief Financial Officer
Richard F. Ambury........................................     43              Vice President and Treasurer
James Bottiglieri........................................     44              Vice President
Audrey L. Sevin..........................................     74              Secretary
Paul Biddelman/(a)/(b)/..................................     54              Director
Thomas J. Edelman........................................     49              Director
I. Joseph Massoud/(c)/...................................     32              Director
William P. Nicoletti/(c)/................................     55              Director
Stephen Russell/(a)/.....................................     60              Director
</TABLE>
___________________________________________
(a)   Member of the Compensation Committee
(b)   Member of the Distribution Committee
(c)   Member of the Audit Committee

Irik P. Sevin has been the Chairman of the Board of Directors of Star Gas LLC
since March 1999. From December 1993 to March 1999, Mr. Sevin served as Chairman
of the Board of Directors of Star Gas Corporation, the predecessor general
partner. Mr. Sevin has been a Director of Petro since its organization in
October 1983, and Chairman of the Board of Petro since January 1993 and served
as President of Petro from 1983 through January 1997. Mr. Sevin was an associate
in the investment banking division of Kuhn Loeb & Co. and then Lehman Brothers
Kuhn Loeb Incorporated from February 1975 to December 1978.

William G. Powers, Jr. has been Executive Vice President of the heating oil
division and member of the Office of the President of Star Gas LLC since March
1999. From December 1997 to March 1999 Mr. Powers served as President of Petro.
Mr. Powers served as President and Chief Executive Officer of Star Gas
Corporation, the predecessor general partner from December 1993 to November
1997. From 1984 to 1993 Mr. Powers was employed by Petro where he served in
various capacities, including Regional Operations Manager and Vice President of
Acquisitions. From 1977 to 1983, he was employed by The Augsbury Corporation, a
company engaged in the wholesale and retail distribution of fuel oil and
gasoline throughout New York and New England and served as Vice President of
Marketing and Operations.

Joseph P. Cavanaugh has been Executive Vice President of the propane division
and member of the Office of the President of Star Gas LLC since March 1999. From
December 1997 to March 1999 Mr. Cavanaugh served as President and Chief
Executive Officer of Star Gas Corporation, the predecessor general partner. From
October 1985 to December 1997, Mr. Cavanaugh held various financial and
management positions with Petro. Prior to his current appointment Mr. Cavanaugh
was also active in the Partnership's management with the development of
safety/compliance programs, assisting with acquisitions and their subsequent
integration into the Partnership.

George Leibowitz has been Chief Financial Officer of Star Gas LLC since March
1999. From April 1997 to March 1999, Mr. Leibowitz served as Treasurer of Petro;
and from November 1992 to March 1997 he was Senior Vice President--Finance and
Corporate Development of Petro. From 1985 to 1992, Mr. Leibowitz was the Chief
Financial Officer of Slomin's Inc., a retail heating oil dealer. From 1984 to
1985, Mr. Leibowitz was the President of Lawrence Energy Corp., a consulting and
oil trading company. From 1971 to 1984, Mr. Leibowitz was Vice President--
Finance and Treasurer of Meenan Oil Co., Inc. Mr. Leibowitz is a Certified
Public Accountant.

                                       25
<PAGE>

Richard F. Ambury has been Vice President and Treasurer of Star Gas LLC since
March 1999. From February 1996 to March 1999, Mr. Ambury served as Vice
President - Finance of Star Gas Corporation, the predecessor general partner.
Mr. Ambury was employed by Petro from June 1983 through February 1996, where he
served in various accounting/finance capacities. From 1979 to 1983, Mr. Ambury
was employed by a predecessor firm of KPMG, a public accounting firm. Mr. Ambury
has been a Certified Public Accountant since 1981.

James J. Bottiglieri has been Vice President of Star Gas LLC since March 1999,
and has served as Controller of Petro since 1994. Mr. Bottiglieri was Assistant
Controller of Petro from 1985 to 1994 and was elected Vice President in December
1992. From 1978 to 1984, Mr. Bottiglieri was employed by a predecessor firm of
KPMG, a public accounting firm. Mr. Bottiglieri has been a Certified Public
Accountant since 1980.

Audrey L. Sevin has been a Director of Star Gas LLC since March 1999 and was a
Director of Star Gas Corporation, the predecessor general partner from December
1993 to March 1999. Mrs. Sevin served as the Secretary of Star Gas Corporation
from June 1994 to March 1999. Mrs. Sevin had been a Director and Secretary of
Petro since its organization in October 1983. Mrs. Sevin was a Director,
executive officer and principal shareholder of A. W. Fuel Co., Inc. from 1952
until its purchase by Petro in May 1981.

Paul Biddelman, has been a Director of Star Gas LLC since March 1999 and was a
Director of Star Gas Corporation, the predecessor general partner from December
1993 to March 1999. Mr. Biddelman had been a director of Petro since October
1994. Mr. Biddelman has been President of Hanseatic Corporation since December
1997. From April 1992 through December 1997, he was Treasurer of Hanseatic
Corporation. Mr. Biddelman is a director of Celadon Group, Inc., Insituform
Technologies, Inc., Six Flags, Inc. and System One Technologies, Inc.

Thomas J. Edelman has been a Director of Star Gas LLC since March 1999 and was a
Director of Star Gas Corporation, the predecessor general partner from December
1993 to March 1999. Mr. Edelman had been a Director of Petro since its
organization in October 1983. Mr. Edelman has been Chairman of Patina Oil & Gas
Corporation since its formation in May 1996. Mr. Edelman also serves as Chairman
of Range Resources Corporation. He co-founded Snyder Oil Corporation and was its
President and a Director from 1981 through February 1997. From 1975 to 1981, he
was a Vice President of The First Boston Corporation. Mr. Edelman also serves as
a Director of Paradise Music & Entertainment, Inc.

I. Joseph Massoud has been a Director of Star Gas LLC since October 1999. Since
1998 he has been President of The Compass Group International LLC, a private
equity investment firm based in Westport, CT. From 1995 to 1998, Mr. Massoud was
employed by Petro as a Vice President. From 1993 to 1995, Mr. Massoud was a Vice
President of Colony Capital, Inc., a Los Angeles based private equity firm
specializing in acquiring distressed real estate and corporate assets.

William P. Nicoletti has been a Director of Star Gas LLC since March 1999 and
was a Director of Star Gas Corporation, the predecessor general partner from
November 1995 to March 1999. Mr. Nicoletti is Managing Director of Nicoletti &
Company Inc., a private investment banking firm servicing clients in the energy
and transportation industries. In addition, Mr. Nicoletti serves as a Senior
Advisor to the Energy Investment Banking Group of McDonald Investments Inc. From
March 1998 until July 1999, Mr. Nicoletti was a Managing Director and co-head of
Energy Investment Banking for McDonald Investments Inc. Prior to forming
Nicoletti & Company in 1991, Mr. Nicoletti was a Managing Director and head of
Energy Investment Banking for PaineWebber Incorporated. Previously, he held a
similar position at E.F. Hutton & Company Inc. He is a member of the managing
board of Atlas Pipeline Partners GP, LLC, the general partner of Atlas Pipeline
Partners, L.P., a master limited partnership that operates natural gas pipeline
gathering systems. He is also a director of StatesRail, Inc., a short-line
railroad holding company.

Stephen Russell has been a Director of Star Gas LLC since October 1999 and was a
director of Petro from July 1996 to March 1999. He has been Chairman of the
Board and Chief Executive Officer of Celadon Group Inc., an international
transportation company, since its inception in July 1986. Mr. Russell has been a
member of the Board of Advisors of the Johnson Graduate School of Management,
Cornell University since 1983.

                                       26
<PAGE>

Audrey Sevin is the mother of Irik P. Sevin. There are no other familial
relationships between any of the directors and executive officers.


Meetings and Compensation of Directors

During fiscal 2000, the Board of Directors met seven times. All Directors
attended each meeting except for one meeting not attended by Mr. Russell and two
meetings not attended by Mr. Edelman. Star Gas LLC pays each director including
the chairman, an annual fee of $27,000. Members of the audit committee receive
an additional $5,000 per annum. Messers. Biddelman, Edelman, Massoud, Nicoletti
and Russell were each granted 8,500 Restricted Senior Subordinated Units on
August 30, 2000. One-fifth of the units immediately vested with the remaining
units vesting in four equal installments if the Partnership achieves specifies
performance objectives in each of the respective fiscal years. The value of the
vested grant in fiscal 2000 was $9,988 for each director.

Committees of the Board of Directors

Star Gas LLC's Board of Directors has an Audit Committee, a Compensation
Committee and a Distribution Committee. The members of each committee are
appointed by the Board of Directors for a one-year term and until their
respective successors are elected.

Audit Committee

The duties of the Audit Committee are described above under "Partnership
Management".

The current members of the Audit Committee are William P. Nicoletti and I.
Joseph Massoud. During fiscal 2000, the audit committee met six times. Members
of the Audit Committee may not be employees of Star Gas LLC.

Compensation Committee

The current members of the Compensation Committee are Paul Biddelman and Stephen
Russell. The duties of the Compensation Committee are (i) to determine the
annual salary, bonus and other benefits, direct and indirect, of any and all
named executive officers (as defined under Regulation S-K promulgated by the
Securities and Exchange Commission) and (ii) to review and recommend to the full
Board any and all matters related to benefit plans covering the foregoing
officers and any other employees. During fiscal 2000, the Compensation Committee
met three times.

Distribution Committee

The current members of the Distribution Committee are Irik Sevin and Paul
Biddelman. The duties of the Distribution Committee are to discuss and review
the Partnership's distributions. During fiscal 2000, the Distribution Committee
met four times.

Reimbursement of Expenses of the General Partner

The General Partner does not receive any management fee or other compensation
for its management of Star Gas Partners. The general partner is reimbursed at
cost for all expenses incurred on the behalf of Star Gas Partners, including the
cost of compensation which is properly allocable to Star Gas Partners. The
partnership agreement provides that the general partner shall determine the
expenses that are allocable to Star Gas Partners in any reasonable manner
determined by the general partner in its sole discretion. In addition, the
general partner and its affiliates may provide services to Star Gas Partners for
which a reasonable fee would be charged as determined by the general partner.

                                       27
<PAGE>

                        ITEM 11. EXECUTIVE COMPENSATION

         The following table sets forth the annual salary, bonuses and all other
compensation awards and payouts to the President and Chief Executive Officer and
to certain named executive officers of the General Partner for services rendered
to Star Gas Partners and its subsidiaries during the fiscal years ended
September 30, 2000, 1999 and 1998.

<TABLE>
<CAPTION>
                                                Summary Compensation Table
                                               --------------------------                                   Long-Term
                                                   Annual Compensation                                     Compensation
                                           ------------------------------------                   ----------------------------
                                                                                    Other           Restricted       Securities
                                                                                    Annual            Stock         Underlying
   Name and Principal Position        Year        Salary          Bonus          Compensation         Awards           UARs
  ----------------------------        ----        ------          -----          ------------         -------       ----------
<S>                                   <C>       <C>              <C>             <C>               <C>              <C>
Irik P. Sevin,                        2000      $ 500,000        $511,250/(6)/      $11,650/(8)/   $723,188/(9)(10)/  400,000/(11)/
Chairman of the Board and             1999      $ 325,000/(1)/   $225,000           $ 2,900/(8)/
Chief Executive Officer               1998      $ 150,000               -                 -

William G. Powers, Jr.,               2000      $ 250,000        $182,750/(6)/      $12,900/(8)/
Executive Vice President/(2)/         1999      $ 125,000/(3)/   $ 75,000           $ 3,900/(8)/        _/(10)/
                                      1998      $  37,500               -                 -

Joseph P. Cavanaugh,                  2000      $ 225,000        $  89,250          $18,768/(7)/
Executive Vice President/(4)/         1999      $ 225,000        $  50,000          $18,768/(7)/        _/(10)/
                                      1998      $ 181,262                -          $14,076/(7)/

George Leibowitz,                     2000      $ 292,500/(5)/   $  37,625/(6)/     $10,225/(8)/
Chief Financial Officer               1999      $ 202,500/(5)/   $ 100,000          $ 2,150/(8)/        _/(10)/

Richard F. Ambury,                    2000      $ 180,000        $  83,375/(6)/     $27,657/(7)/
Vice President and Treasurer          1999      $ 160,000        $  70,000          $26,032/(7)/        _/(10)/
                                      1998      $ 150,000        $  37,500          $26,032/(7)/
</TABLE>

(1)  Amount does not include $175,000 of compensation paid by Petro prior to its
     acquisition by the Partnership.
(2)  Mr. Powers assumed the position of President and Chief Executive Officer of
     Petro on November 30, 1997.
(3)  Amount does not include $125,000 of compensation paid by Petro prior to its
     acquisition by the Partnership.
(4)  Mr. Cavanaugh joined the Partnership on December 1, 1997.
(5)  This amount represents payments made pursuant to an employment contract
     (see "Employment Contracts" section of this document). The 1999 amount does
     not include $264,000 of compensation paid by Petro prior to its acquisition
     by the Partnership.
(6)  Fiscal 2000 bonus amount includes the value of Senior Subordinated Units
     granted and vested in fiscal 2000 under the Partnership's Employee Unit
     Incentive Plan as follows; Irik P. Sevin - $117,500, William G. Powers,
     Jr. -$47,000, Joseph P. Cavanaugh - $35,250, George Leibowitz - $17,625 and
     Richard F. Ambury - $29,375. Mr. Sevin was also granted 20,300 Senior
     Subordinated Units in December 2000 in lieu of cash compensation for his
     2000 bonus performance at a value of $168,750 on the grant date. (7) These
     amount represent funds paid in lieu of contributions to the Partnership's
     retirement plans. (8) These amounts represent contributions under Petro's
     defined contribution retirement plan. (9) This award represents the
     granting of 87,000 Restricted Senior Subordinated units that vest equally
     in four installments on December 1, 2001, December 1, 2002, December 1,
     2003 and December 1, 2004. Distributions on the restrictive units will
     accrue (to the extend declared) from June 30, 2000.
(10) As of September 30, 2000, the following Restricted grants of Senior
     Subordinated Units granted under the Partnership's Employee Unit Incentive
     Plan valued at the September 30, 2000 closing price were outstanding as
     follows: Irik P. Sevin -$720,000 (80,000 units), William G. Powers, Jr. -
     $288,000 (32,000 units), Joseph P. Cavanaugh - $216,000 (24,000 units),
     George Leibowitz -$108,000 (12,000 units) and Richard F. Ambury - $180,000
     (20,000 units).
(11) Mr. Sevin was also granted an option to acquire shares in TG&E equal to
     five percent of TG&E's outstanding shares as of March 21, 2001.

                     Option/UAR Grants in Last Fiscal Year


<TABLE>
<CAPTION>
                         Number of       Percent of Total                      Potential Realizable Value at Assumed Annual Rates
                        Securities       UAR's Granted to                         of Unit Price Appreciation for Option Term
                        Underlying         Employees in                        --------------------------------------------------
Name                   UAR's Granted        Fiscal Year        Exercise Price      Expiration Date             5%          10%
----                  -------------       -------------        -------------     ---------------           --------       ------
<S>                   <C>                 <C>                  <C>               <C>                       <C>            <C>
Irik P. Sevin/(c)/       350,000               86%                $8.625                (a)                 $269,587      $550,464
Irik P. Sevin             50,000               14%                $8.3125               (b)                 $ 24,375      $ 48,375
</TABLE>


(a)  The Restricted Unit Appreciation Rights vest in four equal installments on
     January 31, 2001, December 1, 2001, December 1, 2002 and December 1, 2003.
     The grantee will be entitled to receive payment in cash for these UARs
     equal to the excess of the fair market value (as defined) of a Senior
     Subordinated Unit on the vesting date over the exercise price.

(b)  The Restricted Unit appreciation rights vest on December 1, 2001. The
     grantee will be entitled to receive payment in cash for these UARs equal to
     the excess of the fair market value (as defined) of a Senior Subordinated
     Unit on the vesting date over the excise price.

(c)  Mr. Sevin was also granted an option to acquire shares in TG&E equal to
     five percent of TG&E's outstanding shares as of March 31, 2001. The
     exercise price is based upon a formula using TG&E's EBITDA (as defined) and
     includes a minimum and maximum exercise price. These options vest in three
     equal annual installments on April 1, 2001, April 1, 2002 and April 1,
     2003.

                                       28
<PAGE>

               Aggregated Option/UAR Exercises in Last Fiscal Year
                      and Fiscal Year End Option/UAR Values

<TABLE>
<CAPTION>
                                               Number of Unexercised UARs at
                                                    September 30, 2000                          Value of In the Money UARs
                Name                          Exercisable(E)/Unexercisable(U)                     at September 30, 2000
                ----                          -------------------------------                   --------------------------
                <S>                           <C>                                                 <C>
                Irik P. Sevin                           400,000 (U)                                      $162,500
</TABLE>


                         Long-Term Incentive Plans - Awards in Last Fiscal Year


<TABLE>
<CAPTION>
                                                                                             Value of
                                                                                          Restricted Units
                                                                     Performance or           Based on
                                            Number of Restricted        Other               September 30,
                                             Senior Subordinated     Period Until          2000 Closing
                  Name                            Units                 Payout                 Price
                  ----                     ---------------------     --------------       ------------------
                <S>                        <C>                       <C>                  <C>
                Irik P. Sevin                      80,000                  (a)                  $720,000
                William G. Powers, Jr.             32,000                  (a)                  $288,000
                Joseph P. Cavanaugh                24,000                  (a)                  $216,000
                George Leibowitz                   12,000                  (a)                  $108,000
                Richard F. Ambury                  20,000                  (a)                  $180,000
</TABLE>

      (a) Represents restricted grant of Senior Subordinated Units under the
          Partnership's employee incentive unit plan on June 27, 2000. These
          units vest annually in four equal installments if the Partnership
          achieves specified performance objectives measured by distributable
          cash flow (as defined) in each of the respective fiscal years. The
          distributable cash flow objective for fiscal years 2001 through 2004
          are $2.19 per unit, $2.29 per unit, $2.39 per unit and $2.49 per unit,
          respectively. These grants will not be paid distributions while the
          securities remain restricted.

Employment Contracts

Agreement with George Leibowitz
-------------------------------

Petro entered into an employment agreement with Mr. Leibowitz, effective April
1, 1997 as modified, which provides (i) for an indefinite period, but ending not
earlier than June 30, 2001 for 60% employment at an annual salary of $180,000.
Upon termination of this agreement, there will be a final period of 6 months at
an annual salary of $135,000 for 45% employment. In addition, if terminated by
the Partnership, all remaining senior subordinated unit grants will vest and
(ii) payments of $18,750 per month for April 1997 to March 2000 were made.

401(k) Plans

The Star Gas Employee Savings Plan is a voluntary defined contribution plan
covering non-union and union employees who have attained the age of 21 and who
have completed one year of service. Participants in the plan may elect to
contribute a sum not to exceed 15% of a participant's compensation. For
non-union employees, Star Gas Propane contributes a matching amount equaling the
participant's contribution not to exceed 3% of the participant's compensation.
In addition, the plan allows Star Gas Propane to contribute an additional
discretionary amount, which will be allocated to each participant based on such
participant's compensation as a percentage of total compensation of all
participants.

Messrs. Sevin, Powers and Leibowitz are covered under a 401(K) defined
contribution plan maintained by Petro. Participants in the plan may elect to
contribute a sum not to exceed 15% of a participant's compensation or $10,500.
Under this plan, Petro makes a 4% core contribution of a participant's
compensation up to $160,000 and matches 2/3 of each amount that a participant
contributes.

                                       29
<PAGE>

                                    ITEM 12.
         SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table shows the beneficial ownership as of November 15, 2000 of
common units, senior subordinated units, junior subordinated units and general
partner units by:

(1) Star Gas LLC and certain beneficial owners and all of the directors and
    officers of Star Gas LLC;
(2) each of the named executive officers of Star Gas LLC; and
(3) all directors and executive officers of Star Gas LLC as a group.

The address of each person is c/o Star Gas Partners, L.P. at 2187 Atlantic
Street, Stamford, Connecticut 06902-0011. An asterisk in the percentage column
refers to a percentage less than one percent.

<TABLE>
<CAPTION>
                                                               Senior                      Junior
                                Common Units              Subordinated Units         Subordinated Units    General Partner Units(a)
                                ------------              ------------------         ------------------    ------------------------
Name                       Number      Percentage     Number      Percentage      Number      Percentage     Number      Percentage
-------------------------  ------      ----------     ------      ----------      ------      ----------     ------      ----------
<S>                        <C>         <C>            <C>         <C>             <C>         <C>            <C>         <C>
Star Gas LLC                       -         -   %            -         -  %            -          -   %      325,729         100%
Irik P. Sevin                      -         -           20,000         *          53,426          15.5       325,729(b)      100
Audrey L. Sevin                    -         -                -         -         153,131          44.3       325,729(b)      100
Hanseatic Americas, Inc.     500,000         2.9%             -         -         138,807          40.2       325,729(b)      100
Paul Biddelman                     -         -            1,980         *               -           -           -               -
Thomas Edelman                     -         -           79,180(c)     3.1              -           -           -               -
I. Joseph Massoud                519         *            1,700         *               -           -           -               -
William P. Nicoletti               -         -            1,700         *               -           -           -               -
Stephen Russell                    -         -            1,700         *               -           -           -
Richard F. Ambury              2,125         *            5,039         *               -           -           -               -
George Leibowitz                   -         -            3,000         *               -           -           -               -
James Bottiglieri              1,500         *            4,000         *               -           -           -               -
Joseph P. Cavanaugh            1,000         *            6,058         *               -           -           -               -
William G. Powers, Jr.         1,000         *            8,000         *               -           -           -               -
All officers and
directors and Star Gas
LLC as a group
 (12 persons)                  6,144         *          132,357        5.1        206,557          59.8%      325,729         100%
</TABLE>

(a)  For purpose of this table, the number of General Partner Units is deemed to
     include the 0.01% General Partner interest in Star Gas Propane.

(b)  Assumes each of Star Gas LLC owners may be deemed to beneficially own all
     of Star Gas LLC's general partner units, however, they disclaim beneficial
     ownership of these units.

(c)  Includes senior subordinated units owned by Mr. Edelman's wife and trust
     for the benefit of his minor children.

* Amount represents less than 1%.

Section 16(a) of the Securities Exchange Act of 1934 requires the General
Partner's officers and directors, and persons who own more than 10% of a
registered class of the Partnership's equity securities, to file reports of
beneficial ownership and changes in beneficial ownership with the Securities and
Exchange Commission ("SEC"). Officers, directors and greater than 10 percent
unitholders are required by SEC regulation to furnish the General Partner with
copies of all Section 16(a) forms.

Based solely on its review of the copies of such forms received by the General
Partner, or written representations from certain reporting persons that no Form
5's were required for those persons, the General Partner believes that during
fiscal year 2000 all filing requirements applicable to its officers, directors,
and greater than 10 percent beneficial owners were met in a timely manner.

             ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The Partnership and the General Partner have certain ongoing
relationships with Petro and its affiliates. Affiliates of the General Partner,
including Petro, perform certain administrative services for the General Partner
on behalf of the Partnership. Such affiliates do not receive a fee for such
services, but are reimbursed for all direct and indirect expenses incurred in
connection therewith.

                                       30
<PAGE>

                                     PART IV

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


         (a)      1.     Financial Statements

                         See "Index to Consolidated Financial Statements and
                         Financial Statement Schedule" set forth on page F-1.

                  2.     Financial Statement Schedule.

                         See "Index to Consolidated Financial Statements and
                         Financial Statement Schedule" set forth on page F-1.

                  3.     Exhibits.

                         See "Index to Exhibits" set forth on page 32.

         (b)             Reports on Form 8-K.

                         The Partnership did not file a Form 8-K during the
                         quarter ended September 30, 2000.

                                       31
<PAGE>

                                INDEX TO EXHIBITS

Exhibit

Number     Description

4.2      Form of Agreement of Limited Partnership of Star Gas Partners, L.P.(2)
4.3      Form of Agreement of Limited Partnership of Star Gas Propane, L.P.(2)
10.1     Form of Credit Agreement among Star Gas Propane, L.P. and certain banks
         (3)
10.2     Form of Conveyance and Contribution Agreement among Star Gas
         Corporation, the Partnership and the Operating Partnership.(3)
10.3     Form of First Mortgage Note Agreement among certain insurance
         companies, Star Gas Corporation and Star Gas Propane L.P.(3)
10.4     Intercompany Debt(3)
10.5     Form of Non-competition Agreement between Petro and the Partnership(3)
10.6     Form of Star Gas Corporation 1995 Unit Option Plan(3)
10.7     Amoco Supply Contract(3)
10.8     Stock Purchase Agreement dated October 20, 1997 with respect to the
         Pearl Gas Acquisition(4)
10.9     Conveyance and Contribution Agreement with respect to the Pearl Gas
         Acquisition(4)
10.10    Second Amendment dated as of October 21, 1997 to the Credit Agreement
         dated as of December 13, 1995 among the Operating Partnership, Bank
         Boston, N.A. and NationsBank, N.A.(4)
10.11    Note Agreement, dated as of January 22, 1998, by and between Star Gas
         and The Northwestern Mutual Life Insurance Company(6)
10.12    Third Amendment dated April 15, 1998 to the Bank Credit Agreement (8)
10.13    Fourth Amendment dated November 3, 1998 to the Bank Credit Agreement
         (9)
10.14    Agreement and Plan of Merger by and among Petroleum Heat and Power Co.,
         Inc., Star Gas Partners, L.P., Petro/Mergeco, Inc., and Star Gas
         Propane, L.P. (2)
10.15    Exchange Agreement (2)
10.16    Amendment to the Exchange Agreement dated as of February 10, 1999 (2)
10.17    Seventh amendment dated June 18, 1999 to the Credit Agreement dated
         December 13, 1995, between Star Gas Propane, L.P. and BankBoston, N.A.
         and NationsBank, N.A.(10)
10.18    Amendment No. 2 dated as of February 15, 2000, to the Credit Agreement,
         dated as of March 15 (12)
10.19    $12,500,000 8.67% First Mortgage Notes, Series A, due March 30, 2012
         $15,000,000 8.72% First Mortgage Notes, Series B, due March 30, 2015
         dated as of March 30, 2000(12)
10.20    Eighth amendment dated June 30, 2000 to the Credit Agreement dated
         December 13, 1995, between Star Gas Propane, L.P. and Fleet National
         Bank formerly known as BankBoston, N.A., and Bank of America, N.A.
         formerly known as NationsBank, N.A.(13)
10.21    June 2000 Star Gas Employee Unit Incentive Plan(13)
10.22    $40,000,000 Senior Secured Note Agreement(14)
21       Subsidiaries of the Registrant(6)
23.1     Consent of KPMG LLP(1) 24.1 Powers of Attorney (11) 27.0 Financial Data
         Schedule (1)

(1)      Filed herewith.
(2)      Incorporated by reference to an Exhibit to the Registrant's
         Registration Statement on Form S-4, File No. 333-66005, filed with the
         Commission on October 22, 1998.
(3)      Incorporated by reference to the same Exhibit to Registrant's
         Registration Statement on Form S-1, File No. 33-98490, filed with the
         Commission on December 13, 1995.
(4)      Incorporated by reference to the same Exhibit to Registrant's Periodic
         Report on Form 8-K, as amended, as filed with the Commission on October
         23 and 29, 1997.
(5)      Incorporated by reference to the same Exhibit to Registrant's
         Registration Statement on Form S-1, File No. 333-40855, filed with the
         Commission on December 11, 1997.
(6)      Incorporated by reference to the same Exhibit to Registrant's
         Registration Statement on Form S-3, File No. 333-47295, filed with the
         Commission on March 4, 1998.
(7)      Incorporated by reference to the same Exhibit to Registrant's Statement
         on Form S-4, File No. 333-49751, filed with the Commission on April 9,
         1998.
(8)      Incorporated by reference to the same Exhibit to Registrant's Quarterly
         Report on Form 10-Q filed with the Commission on May 7, 1998.
(9)      Incorporated by reference to the same Exhibit to Registrant's Annual
         Report on Form 10-K filed with the Commission on November 24, 1998.
(10)     Incorporated by reference to the same Exhibit to Registrant's Quarterly
         Report on Form 10-Q filed with the Commission on August 11, 1999.
(11)     Incorporated by reference to the same Exhibit to Registrant's
         Registration Statement on Form S-3MEF, File No. 333-85497, filed with
         the Commission on August 18, 1999.
(12)     In corporated by reference to the same Exhibit to Registrant's
         Quarterly Report on Form 10-Q filed with the Commission on April 26,
         2000.
(13)     Incorporated by reference to the same Exhibit to Registrant's Quarterly
         Report on Form 10-Q field with the Commission on August 10, 2000.
(14)     In Accordance with item 601(B)(4)(iii) of Regulation S-K, the
         Partnership will provide a copy of this document to the SEC upon
         request.

                                       32
<PAGE>

                                    SIGNATURE

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

                                   Star Gas Partners, L.P.
                           By:     Star Gas LLC (General Partner)

                                   /s/Irik P. Sevin
                                   --------------------------------------------
                           By:        Irik P. Sevin
                                      Chairman   of   the   Board   and   Chief
                                      Executive Officer

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

<TABLE>
<CAPTION>
Signature                                            Title                                     Date
---------                                            -----                                     ----
<S>                                                  <C>                                       <C>
/s/  Irik P. Sevin                                   Chairman of the Board, Chief Executive    December 21, 2000
-----------------------------------------------      Officer and Director
     Irik P. Sevin
     Star Gas LLC

/s/  George Leibowitz                                Chief Financial Officer                   December 21, 2000
-----------------------------------------------      Star Gas LLC
     George Leibowitz
    (Principal Financial and Accounting Officer)

/s/  Audrey L. Sevin                                 Director
-----------------------------------------------      Star Gas LLC
     Audrey L. Sevin                                                                           December 21, 2000

/s/  Paul Biddelman                                  Director
-----------------------------------------------      Star Gas LLC
     Paul Biddelman                                                                            December 21, 2000

/s/  Thomas J. Edelman                               Director
-----------------------------------------------      Star Gas LLC
     Thomas J. Edelman                                                                         December 21, 2000

/s/  I. Joseph Massoud                               Director
-----------------------------------------------      Star Gas LLC
     I. Joseph Massoud                                                                         December 21, 2000

/s/  William P. Nicoletti                            Director
-----------------------------------------------      Star Gas LLC
     William P. Nicoletti                                                                      December 21, 2000

/s/  Stephen Russell                                 Director
-----------------------------------------------      Star Gas LLC
     Stephen Russell                                                                           December 21, 2000
</TABLE>

                                       33
<PAGE>

                    STAR GAS PARTNERS, L.P. AND SUBSIDIARIES

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                        AND FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
                                                                                                  PAGE
                                                                                                  ----
<S>                                                                                               <C>
Part II        Financial Information:

               Item 8 - Financial Statements

                   Independent Auditors' Report............................................       F-2

                   Consolidated Balance Sheets as of
                   September 30, 1999 and 2000.............................................       F-3

                   Consolidated Statements of Operations years ended
                   September 30, 1998, 1999 and 2000.......................................       F-4

                   Consolidated Statement of Partners' Capital for the
                   years ended September 30, 1998, 1999 and 2000...........................       F-5

                   Consolidated Statements of Cash Flows for the years
                   ended September 30, 1998, 1999 and 2000.................................       F-6

                   Notes to Consolidated Financial Statements..............................       F-7 - F-27

                   Schedule for the years ended September 30, 1998, 1999 and 2000

                        II.  Valuation and Qualifying Accounts.............................       F-28

</TABLE>

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

                    STAR GAS PARTNERS, L.P. AND SUBSIDIARIES

                          INDEPENDENT AUDITORS' REPORT

     The Partners of Star Gas Partners, L.P.:

         We have audited the consolidated financial statements of Star Gas
     Partners, L.P. and Subsidiaries as listed in the accompanying index. In
     connection with our audits of the consolidated financial statements, we
     have also audited the financial statement schedule as listed in the
     accompanying index. These consolidated financial statements and financial
     statement schedule are the responsibility of the Partnership's management.
     Our responsibility is to express an opinion on these consolidated financial
     statements and financial statement schedule based on our audits.

         We conducted our audits in accordance with generally accepted auditing
     standards of the United States. 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
     Star Gas Partners, L.P. and Subsidiaries as of September 30, 1999 and 2000
     and the results of their operations and their cash flows for each of the
     years in the three-year period ended September 30, 2000, in conformity with
     generally accepted accounting principles of the United States. Also in our
     opinion, the related financial statement schedule, when considered in
     relation to the basic consolidated financial statements taken as a whole,
     presents fairly, in all material respects, the information set forth
     therein.

     Stamford, Connecticut                                          KPMG LLP
     December 14, 2000

                                      F-2
<PAGE>

                    STAR GAS PARTNERS, L.P. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                                  September 30,
                                                                                        ----------------------------------
                                                                                            1999                 2000
                                                                                        -------------        -------------
<S>                                                                                     <C>                  <C>
                       Assets
                       Current assets:
    Cash and cash equivalents                                                           $       4,492        $      10,910
    Receivables, net of allowance of $948 and $1,956, respectively                             42,295               66,858
    Inventories                                                                                26,317               34,407
    Prepaid expenses and other current assets                                                  13,764               14,815
                                                                                        -------------        -------------
           Total current assets                                                                86,868              126,990
                                                                                        -------------        -------------

Property and equipment, net                                                                   154,967              171,300
Long-term portion of accounts receivable                                                        5,590                7,282
Intangibles and other assets, net                                                             291,919              313,404
                                                                                        -------------        -------------
           Total assets                                                                 $     539,344        $     618,976
                                                                                        =============        =============
                       Liabilities and Partners' Capital
                       Current liabilities:
    Accounts payable                                                                    $      12,939        $      27,874
    Working capital facility borrowings                                                         3,150               24,400
    Current maturities of long-term debt                                                        1,391               16,515
    Accrued expenses                                                                           43,044               42,410
    Unearned service contract revenue                                                          14,007               15,654
    Customer credit balances                                                                   31,094               37,943
                                                                                        -------------        -------------
           Total current liabilities                                                          105,625              164,796
                                                                                        -------------        -------------

Long-term debt                                                                                276,638              310,414
Other long-term liabilities                                                                     6,905                4,588

Partners' Capital:
    Common unitholders                                                                        145,906              134,672
    Subordinated unitholders                                                                    5,878                6,090
    General partner                                                                            (1,608)              (1,584)
                                                                                        -------------        -------------
           Total Partners' Capital                                                            150,176              139,178
                                                                                        -------------        -------------

           Total Liabilities and Partners' Capital                                      $     539,344        $     618,976
                                                                                        =============        =============
</TABLE>

See accompanying notes to consolidated financial statements.

                                      F-3
<PAGE>

                   STAR GAS PARTNERS, L.P. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                       Years Ended September 30,
                                                                         ---------------------------------------------------------
(in thousands, except per unit data)                                             1998                 1999                2000
                                                                          -------------------   -------------------  -------------
<S>                                                                         <C>                   <C>                 <C>
Sales:
   Product                                                                   $   103,114          $   177,936         $   642,712
   Installation, service and appliances                                            8,571               46,084             101,952
                                                                             -----------          -----------         -----------
       Total sales                                                               111,685              224,020             744,664

Costs and expenses:
   Cost of product                                                                46,909               80,786             383,828
   Cost of installation, service and appliances                                    2,589               50,863             117,761
   Delivery and branch                                                            37,216               86,489             156,862
   Depreciation and amortization                                                  11,462               22,713              34,708
   General and administrative                                                      6,065               11,634              20,005
   TG&E customer acquisition expense                                                   -                    -               2,082
   Unit compensation expense                                                           -                    -                 649
   Net gain (loss) on sales of assets                                               (271)                 (83)                143
                                                                             -----------          -----------         -----------
       Operating income (loss)                                                     7,173              (28,548)             28,912
Interest expense, net                                                              7,927               15,435              26,784
Amortization of debt issuance costs                                                  176                  347                 534
                                                                             -----------          -----------         -----------
       Income (loss) before income taxes and minority
          interest                                                                  (930)             (44,330)              1,594
Minority interest in net loss of TG&E                                                  -                    -                 251
Income tax expense (benefit)                                                          25              (14,780)                492
                                                                             -----------          -----------         -----------
       Net income (loss)                                                     $      (955)         $   (29,550)        $     1,353
                                                                             ===========          ===========         ===========

       General Partner's interest in net income (loss)                       $       (19)         $      (587)        $        24
                                                                             -----------          -----------         -----------

Limited Partners' interest in net income (loss)                              $      (936)         $   (28,963)        $     1,329
                                                                             ===========          ===========         ===========

Basic and diluted net income (loss) per Limited Partner unit                 $     (0.16)         $     (2.53)        $       .07
                                                                             ===========          ===========         ===========

Basic and diluted weighted average number of Limited Partner
 units outstanding                                                                 6,035               11,447              18,288
                                                                             ===========          ===========         ===========
</TABLE>



See accompanying notes to consolidated financial statements.




                                      F-4
<PAGE>

                    STAR GAS PARTNERS, L.P. AND SUBSIDIARIES

                   CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
                  Years Ended September 30, 1998, 1999 and 2000

(in thousands, except per unit amounts)

<TABLE>
<CAPTION>
                                       Number of Units
                             --------------------------------------------
                                                                                                                            Total
                                                  Senior  Junior   General                     Senior   Junior   General   Partners'
                                  Common    Sub.    Sub.    Sub.    Partner   Common    Sub.     Sub.     Sub.    Partner   Capital
                                  ------    ----    ----    ----    -------   ------    ----     ----     ----    ------   -------
     <S>                          <C>      <C>      <C>     <C>     <C>     <C>        <C>       <C>      <C>     <C>      <C>
     Balance as of
      September 30, 1997          2,875    2,396    -       -         -      $47,573   $4,034     -        -      $ (29)   $51,578

Contribution of assets, net         148                                         3,399                                68     3,467
Issuance of Common
   Units, net                       809                                        15,745                               344    16,089
Issuance of Common Units
  in connection with an
  acquisition                        27                                           600                                12       612
Net loss                                                                         (728)    (208)                     (19)     (955)
Distributions ($2.20 per unit)                                                 (7,903)  (5,272)                    (269)  (13,444)
                                 --------------------------------------------------------------------------------------------------
     Balance  as of
     September 30, 1998           3,859    2,396    -       -         -       58,686   (1,446)    -        -        107    57,347

Exchange of ownership in
   connection with the Star
   Gas / Petro Transaction                (2,396)  2,477   345       326      (8,958)  (2,754)  11,903    797      (988)       -

Issuance of Units in
   equity offerings (including
   exercise of overallotments)   10,076                                       135,816                                     135,816
Issuance of Units in
   redemption of Petro's
   12 7/8% Preferred Stock          401                                         5,399                                       5,399
Issuance of Units in
   redemption of Petro's
   Junior Preferred Stock           103                                         1,459                                       1,459
Net loss                                                                      (26,141)   4,200   (6,165) (857)     (587)  (29,550)
Distributions
  ($2.25 per common unit)                                                     (19,484)                             (140)  (19,624)
Other                               (61)                                         (871)              200                      (671)
                                 --------------------------------------------------------------------------------------------------
Balance as of
   September 30, 1999            14,378        -   2,477   345       326     145,906        -     5,938   (60)   (1,608)  150,176

Issuance of Common Units          1,667                                       22,611                                       22,611
Issuance of Senior
  Subordinated Units                                 110                                            649                       649
Net income                                                                      1,122               182    25        24     1,353
Distributions
  ($2.30 per common unit)                                                     (34,967)                                    (34,967)
Distributions
  ($0.25 per senior Sub.  unit)                                                                    (644)                     (644)
                                 --------------------------------------------------------------------------------------------------
  Balance as of
     September 30, 2000          16,045        -   2,587   345       326     $134,672  $    -    $6,125 $ (35)  $(1,584) $139,178

                                 ==================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.

                                      F-5
<PAGE>

                    STAR GAS PARTNERS, L.P. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

(in thousands)                                                                        Years Ended September 30,
                                                                          --------------------------------------------------

                                                                              1998             1999               2000
                                                                          -------------    --------------    -------------
<S>                                                                       <C>              <C>               <C>
Cash flows from operating activities:
Net income (loss)                                                         $       (955)    $     (29,550)    $      1,353
Adjustments to reconcile net income (loss) to net cash
  provided by operating activities:
Depreciation and amortization                                                   11,462            22,713           34,708
Amortization of debt issuance cost                                                 176               347              534
Minority interest in net loss of TG&E                                                -                 -             (251)
Unit compensation expense                                                            -                 -              649
Provision for losses on accounts receivable                                        239               371            2,669
(Gains) loss on sales of assets                                                    271                83             (143)
Deferred tax benefit                                                               -             (14,946)               -
Changes in operating assets and liabilities, net of amounts acquired:
     Decrease (increase) in receivables                                            342            27,954          (22,327)
     Increase in inventories                                                    (3,705)           (1,962)          (6,272)
     Decrease  (increase) in other assets                                          198            (8,460)          (3,134)
     Increase (decrease) in accounts payable                                        81            (1,922)           6,589
     Increase in other current and long-term liabilities                         1,155            16,167            5,989
                                                                          -------------    --------------    -------------
              Net cash provided by operating activities                          9,264            10,795           20,364
                                                                          -------------    --------------    -------------
Cash flows from investing activities:
Capital expenditures                                                            (5,015)           (7,383)          (7,560)
Proceeds from sales of fixed assets                                                315               207            1,136
Cash acquired in acquisition                                                     1,825            19,151              876
Acquisitions                                                                   (10,401)          (14,952)         (59,624)
                                                                          -------------    --------------    -------------
              Net cash used in investing activities                            (13,276)           (2,977)         (65,172)
                                                                          -------------    --------------    -------------
Cash flows from financing activities:
 Working capital facility borrowings                                            20,300            20,350          104,450
 Working capital facility repayments                                           (15,530)          (21,970)         (85,801)
 Acquisition facility borrowings                                                30,000            21,000           65,800
 Acquisition facility repayments                                               (21,000)          (16,700)         (36,200)
 Repayment of debt, net                                                        (23,000)         (198,062)          (9,426)
 Proceeds from issuance of debt                                                 11,000            87,552           28,726
 Distributions                                                                 (13,444)          (19,624)         (35,611)
 Increase in deferred charges                                                        -              (944)            (442)
 Proceeds from issuance of Common Units, net                                    16,089           136,065           22,611
 Redemption of preferred stock                                                       -           (11,746)               -
 Other                                                                            (177)             (362)          (2,881)
                                                                          -------------    --------------    -------------
              Net cash provided by (used in) financing activities                4,238            (4,441)          51,226
                                                                          -------------    --------------    -------------

              Net increase (decrease) in cash                                      226             3,377            6,418
Cash at beginning of period                                                        889             1,115            4,492
                                                                          -------------    --------------    -------------
Cash at end of period                                                     $      1,115     $       4,492     $     10,910
                                                                          ============     ==============    =============
</TABLE>

See accompanying notes to consolidated financial statements.

                                      F-6
<PAGE>

                    STAR GAS PARTNERS, L.P. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1)       Partnership Organization

         Star Gas Partners, L.P. ("Star Gas Partners" or the "Partnership") is a
         diversified home energy distributor and services provider, specializing
         in heating oil, propane, natural gas and electricity. Star Gas Partners
         is a Master Limited Partnership whose 16.0 million common limited
         partner units (trading symbol "SGU" representing a 83.1% limited
         partner interest in Star Gas Partners) and 2.6 million senior
         subordinated units (trading symbol "SGH" representing a 13.4% limited
         partner interest in Star Gas Partners) are traded on the New York Stock
         Exchange. Additional interest in Star Gas Partners are comprised of 0.3
         million junior subordinated units (representing a 1.8% limited partner
         interest in Star Gas Partners) and 0.3 million general partner units
         (representing a 1.7% general partner interest in Star Gas Partners).

         The Partnership acquired Petro on March 26, 1999 in a series of
         transactions which closed concurrently (see footnote 7). This
         acquisition was accounted for under the purchase method of accounting.
         Petro, Star Gas Partners and Star Gas Propane entered into a merger
         agreement. Under the terms of this agreement, a newly formed subsidiary
         of Star Gas Propane was merged with Petro, with Petro surviving the
         merger as a wholly-owned indirect subsidiary of Star Gas Propane.

         Operationally the Partnership is organized as follows:

         .    Petro Holdings, Inc. ("Petro" or the "heating oil segment"), is
              the nation's largest distributor of home heating oil and serves
              approximately 350,000 customers in the Northeast and Mid-Atlantic.
              Petro is an indirect wholly owned subsidiary of Star Gas Propane,
              L.P.

         .    Star Gas Propane, L.P., ("Star Gas Propane" or the "propane
              segment") is a wholly owned subsidiary of Star Gas Partners. Star
              Gas Propane markets and distributes propane gas and related
              products to more than 200,000 customers in the Midwest and
              Northeast.

         .    Total Gas and Electric ("TG&E" or the "natural gas and electric
              reseller segment") is an energy reseller that markets natural gas
              and electricity to residential homeowners in deregulated energy
              markets in the Northeast and Mid-Atlantic states of New York, New
              Jersey, Pennsylvania and Maryland and serves approximately 110,000
              residential customers. TG&E is a 72.7% owned subsidiary of the
              Partnership.

2)       Summary of Significant Accounting Policies

         Basis of Presentation

         The Consolidated Financial Statements for the period October 1, 1997
         through March 25, 1999 include the accounts of Star Gas Partners, L.P.,
         and subsidiaries, principally Star Gas Propane. Beginning March 26,
         1999, the Consolidated Financial Statements also include the accounts
         and results of operations of Petro. Beginning April 7, 2000, the
         Consolidated Financial Statements also include the accounts and results
         of operations of TG&E. The Partnership consolidates 72.7% of TG&E's
         balance sheet. Revenue and expenses are also consolidated with the
         Partnership with a deduction for the net loss allocable to the minority
         interest, which amount could be limited based upon the equity of the
         minority interest. All material intercompany items and transactions
         have been eliminated in consolidation.

         Use of Estimates

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

         Revenue Recognition

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

                                      F-7
<PAGE>

2)       Summary of Significant Accounting Policies - (continued)

         Basic and Diluted Net Income (Loss) per Limited Partner Unit

         Net income (loss) per Limited Partner Unit is computed by dividing net
         income (loss), after deducting the General Partner's interest, by the
         weighted average number of Common Units, Senior Subordinated Units and
         Junior Subordinated Units outstanding.

         Cash Equivalents

         The Partnership considers all highly liquid investments with a maturity
         of three months or less, when purchased, to be cash equivalents.

         Inventories

         Inventories are stated at the lower of cost or market and are computed
         on a first-in, first-out basis.

         Property, Plant, and Equipment

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

         Intangible Assets

         Intangible assets include goodwill, covenants not to compete, customer
         lists and deferred charges.

         Goodwill is the excess of cost over the fair value of net assets in the
         acquisition of a company. The Partnership amortizes goodwill using the
         straight-line method over a twenty-five year period.

         Covenants not to compete are non-compete agreements established with
         the owners of an acquired company and are amortized over the respective
         lives of the covenants, which are generally five years.

         Customer lists are the names and addresses of the acquired company's
         patrons. Based on the historical retention experience of these lists,
         Star Gas Propane amortizes customer lists on a straight-line method
         over fifteen years, Petro amortizes customer lists on a straight-line
         method over seven to ten years and TG&E amortizes customer lists on a
         straight-line method over ten years.

         Deferred charges represent the costs associated with the issuance of
         debt instruments and are amortized using the interest method over the
         lives of the related debt instruments.

         It is the Partnership's policy to review intangible assets for
         impairment whenever events or changes in circumstances indicate that
         the carrying amount of such assets may not be recoverable. The
         Partnership determines that the carrying values of intangible assets
         are recoverable over their remaining estimated lives through
         undiscounted future cash flow analysis. If such a review should
         indicate that the carrying amount of the intangible assets is not
         recoverable, it is the Partnership's policy to reduce the carrying
         amount of such assets to fair value.

         Advertising Expenses

         Advertising costs are expensed as they are incurred.

         Customer Credit Balances

         Customer credit balances represent pre-payments received from customers
         pursuant to a budget payment plan (whereby customers pay their
         estimated annual usage on a fixed monthly basis) and the payments made
         have exceeded the charges for deliveries.

                                      F-8
<PAGE>

2)       Summary of Significant Accounting Policies - (continued)

         Environmental Costs

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

         Derivatives  and Premiums

         The Partnership uses derivatives to hedge the price risk associated
         with the products it sells to guaranteed maximum price customers and to
         some extent natural gas and heating oil inventory on hand. The realized
         gains and losses from these derivatives are matched with the inventory
         being hedged and are included with cost of goods sold. Premiums paid
         for derivatives are capitalized and amortized as part of cost of goods
         sold over the lives of the related instruments.

         TG&E Customer Acquisition Expense

         TG&E customer acquisition expense represents the purchase of new
         accounts form a third party direct marketing company for the
         Partnership's natural gas and electric reseller division. Such cost are
         charged as incurred upon acquisition of new customers.

         Employee Unit Incentive Plan

         When applicable, the Partnership accounts for stock-based compensation
         arrangements in accordance with APB No. 25. Compensation costs for
         fixed awards on pro-rata vesting are recognized straight-line over the
         vesting period. The Partnership adopted an employee unit incentive plan
         to grant certain employees senior subordinated units of limited partner
         interest of the Partnership ("incentive units"), as an incentive for
         increased efforts during employment and as an inducement to remain in
         the service of the Partnership. Grants of incentive units vest twenty
         percent immediately, with the remaining amount vesting over four
         consecutive installments if the Partnership achieves annual targeted
         distributable cash flow. The Partnership records an expense for the
         incentive units granted, which require no cash contribution, over the
         vesting period for those units which are probable of being issued.

         Income Taxes

         The Partnership is a master limited partnership. As a result, for
         Federal income tax purposes, earnings or losses are allocated directly
         to the individual partners. Except for the Partnership's corporate
         subsidiaries, no recognition has been given to Federal income taxes in
         the accompanying financial statements of the Partnership. While the
         Partnership's corporate subsidiaries will generate non-qualifying
         Master Limited Partnership revenue, dividends from the corporate
         subsidiaries to the Partnership are included in the determination of
         Master Limited Partnership income. In addition, a portion of the
         dividends received by the Partnership from the corporate subsidiaries
         will be taxable to the partners. Net earnings for financial statement
         purposes will differ significantly from taxable income reportable to
         partners as a result of differences between the tax basis and financial
         reporting basis of assets and liabilities and due to the taxable income
         allocation requirements of the Partnership agreement.

         For all corporate subsidiaries of the Partnership excluding TG&E, a
         consolidated Federal income tax return is filed. TG&E files a separate
         Federal income tax return. Deferred tax assets and liabilities are
         recognized for the future tax consequences attributable to differences
         between the financial statement carrying amount of assets and
         liabilities and their respective tax bases and operating loss
         carryforwards. Deferred tax assets and liabilities are measured using
         enacted tax rates expected to apply to taxable income in the years in
         which those temporary differences are expected to be recovered or
         settled.

                                      F-9
<PAGE>

2)       Summary of Significant Accounting Policies - (continued)

         Accounting Changes

         In June 1998, the Financial Accounting Standards Board ("FASB") issued
         Statement of Financial Accounting Standard No. 133 "Accounting for
         Derivative Instruments and Hedging Activities" (SFAS No. 133) as
         amended by SFAS No. 137 and No. 138. SFAS No. 133 establishes
         accounting and reporting standards for derivative instruments,
         including certain derivative instruments embedded in other contracts,
         and hedging activities. It requires the recognition of all derivative
         instruments as assets or liabilities in the Partnership's balance sheet
         and measurement of those instruments at fair value and requires that a
         company formally document, designate and assess the effectiveness of
         transactions that receive hedge accounting.

         The accounting treatment of changes in fair value is dependent upon
         whether or not a derivative instrument is designated as a hedge and if
         so, the type of hedge. For derivatives designated as Cash Flow Hedges,
         changes in fair value are recognized in other comprehensive income
         until the hedged item is recognized in earnings. For derivatives
         recognized as Fair Value Hedges, changes in fair value are recognized
         in the income statement and are offset by related results of the hedged
         item. Changes in the fair value of derivative instruments, which are
         not designated as hedges or which do not qualify for hedge accounting
         are recognized in earnings as they occur.

         The Partnership periodically hedges a portion of its oil, propane and
         natural gas purchases through futures, options, collars and swap
         agreements. The purpose of the hedges is to provide a measure of
         stability in the volatile environment of oil, propane and natural gas
         prices and to manage its exposure to commodity price risk under certain
         existing sales commitments.

         The Partnership will adopt SFAS No. 133 on October 1, 2000, and will
         record its derivatives at fair market value. As a result of adopting
         the Standard, the Company will recognize an approximate $1.5 million
         increase in net income and a $10.5 million increase in additional other
         comprehensive income which will be recorded as a cumulative effect of a
         change in accounting principle in the first quarter ending December 31,
         2000.

3)       Quarterly Distribution of Available Cash

         In general, the Partnership distributes to its partners on a quarterly
         basis all "Available Cash." Available Cash generally means, with
         respect to any fiscal quarter, all cash on hand at the end of such
         quarter less the amount of cash reserves that are necessary or
         appropriate in the reasonable discretion of the General Partner to (1)
         provide for the proper conduct of the Partnership's business, (2)
         comply with applicable law or any of its debt instruments or other
         agreements or (3) in certain circumstances provide funds for
         distributions to the common unitholders and the senior subordinated
         unitholders during the next four quarters. The General Partner may not
         establish cash reserves for distributions to the senior subordinated
         units unless the General Partner has determined that in its judgment
         the establishment of reserves will not prevent the Partnership from
         distributing the Minimum Quarterly Distribution ("MQD") on all common
         units and any common unit arrearages thereon with respect to the next
         four quarters. Certain restrictions on distributions on senior
         subordinated units, junior subordinated units and general partner units
         could result in cash that would otherwise be Available Cash being
         reserved for other purposes. Cash distributions will be characterized
         as distributions from either Operating Surplus or Capital Surplus.

         The senior subordinated units, the junior subordinated units, and
         general partner units are each a separate class of interest in Star Gas
         Partners, and the rights of holders of those interests to participate
         in distributions differ from the rights of the holders of the common
         units.

         The Partnership intends to distribute to the extent there is sufficient
         Available Cash, at least a MQD of $0.575 per common unit, or $2.30 per
         common unit on a yearly basis. In general, Available Cash will be
         distributed per quarter based on the following priorities:

         .  First, to the common units until each has received $0.575, plus any
            arrearages from prior quarters.
         .  Second, to the senior subordinated units until each has received
            $0.575.
         .  Third, to the junior subordinated units and general partner units
            until each has received $0.575.
         .  Finally, after each has received $0.575, available cash will be
            distributed proportionately to all units until target levels are
            met.

                                     F-10
<PAGE>

3)       Quarterly Distribution of Available Cash - (continued)

         If distributions of available cash exceed target levels greater than
         $0.604, the senior subordinated units, junior subordinated units and
         general partner units will receive incentive distributions.

         In July 2000, the Partnership announced based on its results in fiscal
         2000, that in addition to its regular quarterly distribution of $0.575
         on its common units, that it would commence quarterly distributions on
         its senior subordinated units at an initial rate of $0.25 per unit.

         The subordination period will end once the Partnership has met the
         financial tests stipulated in the partnership agreement, but it
         generally cannot end before October 1, 2003. However, if the general
         partner is removed under some circumstances, the subordination period
         will end. When the subordination period ends, all senior subordinated
         units and junior subordinated units will convert into Class B common
         units on a one-for-one basis, and each common unit will be redesignated
         as a Class A common unit. The main difference between the Class A
         common units and Class B common units is that the Class B common units
         will continue to have the right to receive incentive distributions and
         additional units.

         The subordination period will generally extend until the first day of
         any quarter beginning on or after October 1, 2003 that each of the
         following three events occur:

         (1) distributions of Available Cash from Operating Surplus on the
         common units, senior subordinated units, junior subordinated units and
         general partner units equal or exceed the sum of the minimum quarterly
         distributions on all of the outstanding common units, senior
         subordinated units, junior subordinated units and general partner units
         for each of the three non-overlapping four-quarter periods immediately
         preceding that date;

         (2) the Adjusted Operating Surplus generated during each of the three
         immediately preceding non-overlapping four-quarter periods equaled or
         exceeded the sum of the minimum quarterly distributions on all of the
         outstanding common units, senior subordinated units, junior
         subordinated units and general partner units during those periods on a
         fully diluted basis for employee options or other employee incentive
         compensation. This includes all outstanding units and all common units
         issuable upon exercise of employee options that have, as of the date of
         determination, already vested or are scheduled to vest before the end
         of the quarter immediately following the quarter for which the
         determination is made. It also includes all units that have as of the
         date of determination been earned by but not yet issued to our
         management for incentive compensation; and

         (3) there are no arrearages in payment of the minimum quarterly
         distribution on the common units.

(4)      Segment Reporting

         In accordance with SFAS No. 131, "Disclosures about Segments of an
         Enterprise and Related Information," the Partnership has four
         reportable segments, retail distribution of heating oil, a retail
         distribution of propane, reselling of natural gas and electricity, and
         the public master limited partnership, Star Gas Partners. Management
         has chosen to organize the enterprise under these four segments in
         order to leverage the expertise it has in each industry, allow each
         segment to continue to strengthen its core competencies and provide a
         clear means for evaluation of operating results.

         The Partnership reevaluated what it considers to be corporate type
         expenses which are better measured at the partnership level during
         fiscal 2000. As a result of this realignment, $0.3 million and $1.1
         million of general and administrative expenses previously recorded as
         heating oil segment and propane segment expenses, respectively, were
         reclassed to the public master limited partnership segment for fiscal
         1999.

         The heating oil segment is primarily engaged in the retail distribution
         of home heating oil, related equipment services, and equipment sales to
         residential and commercial customers. It operates primarily in the
         Northeast and Mid-Atlantic states. Home heating oil is principally used
         by the Partnership's residential and commercial customers to heat their
         homes and buildings, and as a result, weather conditions have a
         significant impact on the demand for home heating oil.

         The propane segment is primarily engaged in the retail distribution of
         propane and related supplies and equipment to residential, commercial,
         industrial, agricultural and motor fuel customers, in the Midwest and
         the Northeast. Propane is used primarily for space heating, water
         heating and cooking by the Partnership's residential and commercial
         customers and as a result, weather conditions also have a significant
         impact on the demand for propane.

                                     F-11
<PAGE>

4)       Segment Reporting - (continued)

The natural gas and electric reseller segment is primarily engaged in offering
natural gas and electricity to residential consumers in deregulated energy
markets. In deregulated energy markets, customers have a choice in selecting
energy suppliers to power and / or heat their homes. TG&E operates in nine
markets in the Northeast/Mid-Atlantic states where competition for energy
suppliers range from independent resellers, like TG&E, to large public
utilities.

The public master limited partnership segment includes the office of the Chief
Executive Officer and has the responsibility for maintaining investor relations
and investor reporting for the Partnership.

The following are the statements of operations and balance sheets for each
segment as of and for the periods indicated. The heating oil segment was
consolidated with the propane segment beginning March 26, 1999, and the electric
and natural gas reselling segment (TG&E) was added beginning April 7, 2000.
There were no inter-segment sales.

<TABLE>
<CAPTION>

(in thousands)                                                       Years Ended September 30,
                                ---------------------------------------------------------------------------------------------------
                                                  1999                                                2000
                                -----------------------------------------    ------------------------------------------------------
Statement of                     Heating                                       Heating
Operations                        Oil      Propane    Partners    Consol.       Oil      Propane    TG&E       Partners   Consol.
----------                      -------    -------    --------    -------     -------    -------    ----       --------   -------
<S>                             <C>        <C>        <C>         <C>        <C>         <C>        <C>       <C>        <C>
Sales:
  Product                       $ 80,279   $ 97,657   $       -   $177,936    $481,466   $137,643   $ 23,603   $      -   $642,712
  Installation,
   service and appliance          36,120      9,964           -     46,084      89,411     12,541          -          -    101,952
                                --------   --------   ---------   --------   ---------   --------   --------   --------   --------

     Total sales                 116,399    107,621           -    224,020     570,877    150,184     23,603          -    744,664
Costs and expenses:
  Cost of product                 42,409     38,377           -     80,786     289,424     72,378     22,026          -    383,828
  Cost of installation,
    service, and appliances       47,661      3,202           -     50,863     113,836      3,925          -          -    117,761

  Delivery and branch             45,470     41,019           -     86,489     112,820     44,042          -          -    156,862
  Depreciation and
    amortization                  10,531     12,182           -     22,713      22,373     11,916        416          3     34,708
  General and
    administrative                 4,889      5,305       1,440     11,634       9,202      6,266      2,041      2,496     20,005
  TG&E customer
     acquisition expense               -          -           -          -           -          -      2,082          -      2,082
  Unit compensation
     expense                           -          -           -          -           -          -          -        649        649
  Net gain (loss)
     on sales of assets                7        (90)          -        (83)          6        137          -          -        143
                                --------   --------   ---------   --------   ---------   --------   --------   --------   --------
      Operating
      income (loss)              (34,554)     7,446      (1,440)   (28,548)     23,228     11,794     (2,962)    (3,148)    28,912
Interest expense, net              7,128      8,307           -     15,435      17,069      9,509        635       (429)    26,784
Amortization of debt
  issuance costs                     167        180           -        347         343        191          -          -        534
                                --------   --------   ---------   --------   ---------   --------   --------   --------   --------
      Income (loss)
      before income
      taxes and
      minority interest          (41,849)    (1,041)     (1,440)   (44,330)      5,816      2,094     (3,597)    (2,719)     1,594
                                --------   --------   ---------   --------   ---------   --------   --------   --------   --------
 Minority interest in
     net loss of TG&E                  -          -           -          -           -          -        251          -        251
 Income tax
     expense (benefit)           (11,900)    (2,880)          -    (14,780)        400         90          2          -        492
                                --------   --------   ---------   --------   ---------   --------   --------   --------   --------
      Net income (loss)         $(29,949)  $  1,839   $  (1,440)  $(29,550)   $  5,416   $  2,004   $ (3,348)  $ (2,719)  $  1,353
                                ========   ========   =========   ========   =========   ========   ========   ========   ========

Capital expenditures            $  2,323   $  5,060   $       -   $  7,383    $  3,478   $  3,927   $    155   $      -   $  7,560
                                ========   ========   =========   ========   =========   ========   ========   ========   ========
</TABLE>

                                     F-12
<PAGE>

4)   Segment Reporting - (continued)

<TABLE>
<CAPTION>
       (in thousands)                      September 30, 1999                                   September 30, 2000
                               -----------------------------------------     ------------------------------------------------------
                                Heating                           (1)          Heating                                      (1)
       Balance Sheets            Oil     Propane     Partners   Consol.         Oil      Propane       TG&E     Partners   Consol.
       --------------         --------- ---------   ---------  ---------     ---------  ---------   ---------  ---------  ---------
       <S>                    <C>       <C>         <C>        <C>           <C>        <C>         <C>        <C>        <C>
       Assets
       Current assets:
         Cash and cash
           equivalents        $   4,270 $     222   $       -  $   4,492     $   6,288  $   2,765   $     222  $   1,635  $  10,910
         Receivables, net        35,960     6,335           -     42,295        51,475      9,976       5,407          -     66,858
         Inventories             16,498     9,819           -     26,317        21,637      8,636       4,134          -     34,407
         Prepaid expenses
          and other
          current assets         13,678     1,156           -     13,764        12,502      1,017       2,157          -     14,815
                              --------- ---------   ---------  ---------     ---------  ---------   ---------  ---------  ---------
          Total current
           assets                70,406    17,532           -     86,868        91,902     22,394      11,290      1,635    126,990
         Property and
           equipment, net        39,849   115,118           -    154,967        39,026    132,008         266          -    171,300
         Long-term portion
          of accounts
            receivable            5,590         -           -      5,590         7,282          -           -          -      7,282
         Investment in
           subsidiaries               -    83,533     152,478          -             -     69,309           -    143,036          -
         Intangibles and
          other assets, net     236,981    54,938           -    291,919       236,069     63,003      14,174        158    313,404
                              --------- ---------   ---------  ---------     ---------  ---------   ---------  ---------  ---------
            Total assets      $ 352,826 $ 271,121   $ 152,478  $ 539,344     $ 374,279  $ 286,714   $  26,360  $ 144,829  $ 618,976
                              ========= =========   =========  =========     =========  =========   =========  =========  =========

<CAPTION>
        Liabilities and
          Partners'             Heating                           (1)          Heating                                      (1)
          Capital                Oil     Propane     Partners   Consol.         Oil      Propane       TG&E     Partners   Consol.
       --------------         --------- ---------   ---------  ---------     ---------  ---------   ---------  ---------  ---------
       <S>                    <C>       <C>         <C>        <C>           <C>        <C>         <C>        <C>        <C>
       Current Liabilities:
        Accounts payable      $   7,366 $   5,573   $       -  $  12,939     $  11,887  $   7,436   $   8,551  $       -  $  27,874
        Working capital
         facility borrowings          -     3,150           -      3,150        17,000        800       6,600          -     24,400
        Current maturities
         of long-term debt        1,391         -           -      1,391         7,669      8,846           -          -     16,515
        Accrued expenses
         and other current
         liabilities             39,012     4,231           -     43,044        36,882      4,006       1,521          -     42,410
        Due to affiliate           (300)   (1,140)      1,440          -        (1,115)    (3,674)          -      4,789          -
        Unearned service
         contract revenue        14,007         -           -     14,007        15,654          -           -          -     15,654
        Customer credit
         balances                26,657     4,437           -     31,094        26,101      9,805       2,037                37,943
                              --------- ---------   ---------  ---------     ---------  ---------   ---------  ---------  ---------
            Total current
             liabilities         88,133    16,251       1,440    105,625       114,078     27,219      18,709      4,789    164,796
       Long-term debt           174,338   102,300           -    276,638       186,397    122,154       1,863          -    310,414
       Other long-term
        liabilities               6,822        92           -      6,905         4,495         93           -          -      4,588
       Partners' Capital:
        Equity Capital           83,533   152,478     151,038    150,176        69,309    137,248       5,788    140,040    139,178
                              --------- ---------   ---------  ---------     ---------  ---------   ---------  ---------  ---------
       Total liabilities and
        Partners' Capital     $ 352,826 $ 271,121   $ 152,478  $ 539,344     $ 374,279  $ 286,714   $  26,360  $ 144,829  $ 618,976
                              ========= =========   =========  =========     =========  =========   =========  =========  =========
</TABLE>

(1) The consolidated amounts include the necessary entries to eliminate the
    investment in Petro Holdings, Star Gas Propane and TG&E.

                                     F-13
<PAGE>

5)      Inventories

        The components of inventory were as follows:

<TABLE>
<CAPTION>
        (in thousands)                                      September 30, 1999          September 30, 2000
                                                            ------------------          ------------------
        <S>                                                 <C>                         <C>
        Propane gas                                            $   7,678                   $   6,323
        Propane appliances and equipment                           2,141                       2,313
        Fuel oil                                                   9,959                      14,263
        Fuel oil parts and equipment                               6,539                       7,374
        Natural gas                                                    -                       4,134
                                                               ---------                   ---------
                                                               $  26,317                   $  34,407
                                                               =========                   =========
</TABLE>


         Substantially all of the Partnership's propane supplies for the
         Northeast retail operations are purchased under supply contracts.
         Certain of the supply contracts provide for minimum and maximum amounts
         of propane to be purchased thereunder, and provide for pricing in
         accordance with posted prices at the time of delivery or include a
         pricing formula that typically is based on current market prices.
         Historically, spot purchases from Mont Belvieu, Texas sources accounted
         for approximately one-third of the Partnership's total volume of
         propane purchases. In addition, the three single largest suppliers in
         the aggregate account for less than half of total propane purchases.

         The Partnership obtains home heating oil in either barge or truckload
         quantities, and has contracts with over 80 terminals for the right to
         temporarily store its heating oil at facilities not owned by the
         Partnership. Purchases are made pursuant to supply contracts or on the
         spot market. The Partnership has market price based contracts for
         substantially all its petroleum requirements with 12 different
         suppliers, the majority of which have significant domestic sources for
         their product, and many of which have been suppliers for over 10 years.
         Typically supply contracts have terms of 12 months. All of the supply
         contracts provide for maximum and in some cases minimum quantities, and
         in most cases the price is based upon the market price at the time of
         delivery.

         The Partnership is an independent reseller of natural gas and
         electricity to residential homeowners in deregulated markets, through
         its 72.7% controlling interest in TG&E. In the markets in which TG&E
         operates, natural gas and electricity are available from wholesale
         natural gas producers and electricity generating companies.
         Substantially all of TG&E's natural gas was purchased from a major
         Texas wholesaler, with the balance from regional wholesalers, who
         transport the natural gas to the incumbent utility company for TG&E,
         through purchased or assigned capacity using existing pipelines.
         Additionally, all of TG&E's electricity was purchased from a major New
         York State wholesaler, who transports the electricity to the incumbent
         utility company, through scheduled deliveries using existing electric
         lines.

         The incumbent utility company then delivers the natural gas and
         electricity to TG&E customers using existing pipelines and electric
         lines. The incumbent utility and TG&E coordinate delivery and billing,
         and also compete to sell the natural gas and electricity to the
         ultimate consumer. Generally, customers pay the incumbent utility a
         service charge to cover customer related costs like meter readings,
         billing, equipment and maintenance. Customers also pay a separate
         delivery charge to the incumbent utility for bringing the natural gas
         or electricity from the customer's chosen supplier. The energy service
         company is then paid by the customer for the natural gas or electricity
         that was supplied. In most markets in which TG&E operates, these
         charges are itemized on one customer energy bill from the utility
         company. In other markets, TG&E directly bills the customer for the
         natural gas or electricity supplied.

         The Partnership may enter into forward contracts with Mont Belvieu
         suppliers, heating oil suppliers or refineries which call for a fixed
         price for the product to be purchased based on current market
         conditions, with delivery occurring at a later date. In most cases the
         Partnership has entered into similar agreements to sell this product to
         customers for a fixed price based on market conditions. In the event
         that the Partnership enters into these types of contracts without a
         subsequent sale, it is exposed to some market risk. Currently, the
         Partnership does not have any contracts that if market conditions were
         to change, would have a material affect on its financial statements.

                                     F-14
<PAGE>

         5)  Inventories - (continued)

         Concentration of Revenue with Guaranteed Maximum Price Customers

         Approximately 45% of the volume sold in the Partnership's heating oil
         segment is sold to individual customers under an agreement pre-
         establishing the maximum sales price of home heating oil over a twelve
         month period. The maximum price at which home heating oil is sold to
         these capped-price customers is generally renegotiated prior to the
         heating season of each year based on current market conditions. The
         heating oil segment currently enters into forward purchase contracts,
         futures contracts and option contracts for a substantial majority of
         the heating oil it sells to these capped-price customers in advance and
         at a fixed cost. Should events occur after a capped-sales price is
         established that increases the cost of home heating oil above the
         amount anticipated, margins for the capped-price customers whose
         heating oil was not purchased in advance would be lower than expected,
         while those customers whose heating oil was purchased in advance would
         be unaffected. Conversely, should events occur during this period that
         decrease the cost of heating oil below the amount anticipated, margins
         for the capped-price customers whose heating oil was purchased in
         advance could be lower than expected, while those customers whose
         heating oil was not purchased in advance would be unaffected or higher
         than expected.

         In accordance with SFAS No. 80, "Accounting for Futures Contracts,"
         futures contracts are classified as a hedge when the item to be hedged
         exposes the company to price risk and the futures contract reduces that
         risk exposure. Future contracts that relate to transactions that are
         expected to occur are accounted for as a hedge when the significant
         characteristics and expected terms of the anticipated transactions are
         identified and it is probable that the anticipated transaction will
         occur. If a transaction does not meet the criteria to qualify as a
         hedge, it is considered to be speculative. Any gains or losses
         associated with futures contracts which are classified as speculative
         are recognized in the current period. There were no speculative
         transactions during fiscal 2000. If a futures contract that has been
         accounted for as a hedge is closed or matures before the date of the
         anticipated transaction, the accumulated change in value of the
         contract is carried forward and included in the measurement of the
         related transaction. Option contracts are accounted for in the same
         manner as futures contracts.

         To hedge a substantial portion of the purchase price associated with
         heating oil gallons anticipated to be sold to its guaranteed maximum
         price customers, the heating oil segment at September 30, 2000 had
         outstanding 88 million gallons of futures contracts to buy heating oil
         with a notional value of $71 million and a fair market value of $79.4
         million; 62.6 million gallons of futures contracts to sell heating oil
         with a notional value of $49.7 million and a fair market value of $55.7
         million; 101 million gallons of option contracts to buy heating oil
         with a notional value of $57.9 million and a fair market value of $68.3
         million; and 108 million gallons of option contracts to sell heating
         oil. None of the Company's outstanding options to sell heating oil,
         which allow the Company the right to sell heating oil at a fixed price
         are currently in the money at September 30, 2000. The contracts expire
         at various times with no contract expiring later than July 2001.

         To hedge a substantial portion of the purchase price associated with
         propane gallons anticipated to be sold to its fixed price customers,
         the propane segment at September 30, 2000 had outstanding futures
         contracts to buy 7.6 million gallons of propane with a notional value
         of $3.2 million and a fair market value totaling $3.0 million. The
         option contract expires in March 2001.

         To hedge a substantial portion of its natural gas inventories, the TG&E
         segment at September 30, 2000, had outstanding futures contracts to
         sell 670,000 dekatherms of natural gas with a notional value of $2.8
         million and fair market value of $3.4 million.

         At September 30, 2000 the unrealized gains (losses) on the heating oil
         segment's, propane segment's and TG&E's hedging activity was
         approximately $12.7 million, $(0.2) million and $(0.6) million,
         respectively. The heating oil segment's hedging activity is designed to
         help it achieve its planned margins and represents approximately 52% of
         the expected total home heating oil volume sold in a twelve month
         period. The propane segment's hedging activity is also designed to help
         it achieve its planned margins and represents approximately 5% of the
         expected total propane volume sold in a twelve month period. TG&E's
         hedging activity is also designed to help achieve its planned margins
         and represents a hedge on 100% of its required physical inventory of
         natural gas at September 30, 2000.

         The carrying amount of all hedging financial instruments at September
         30, 2000 was approximately $1.7 million and is included in Prepaid
         Expenses on the Consolidated Balance Sheet. The risk that
         counterparties to such instruments may be unable to perform is
         minimized by limiting the counterparties to major oil companies and
         major financial institutions, including the New York Mercantile
         Exchange. The Partnership does not expect any losses due to
         counterparty default.

                                     F-15
<PAGE>

6)       Property, Plant and Equipment

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

<TABLE>
<CAPTION>
        (in thousands)                         September 30, 1999      September 30, 2000     Estimated Useful Lives
                                               ------------------      ------------------    -----------------------
        <S>                                    <C>                     <C>                   <C>
        Land                                      $    8,669               $  10,688
        Buildings and leasehold improvements          21,370                  22,295             4 - 30 years
        Fleet and other equipment                     34,470                  39,600             3 - 30 years
        Tanks and equipment                          113,774                 131,901             8 - 30 years
        Furniture and fixtures                        14,396                  17,500             5 - 12 years
                                                  ----------               ---------
          Total                                      192,679                 221,984
        Less accumulated depreciation                 37,712                  50,684
                                                  ----------               ---------
          Total                                   $  154,967               $ 171,300
                                                  ==========               =========
</TABLE>

7)       Intangibles and Other Assets

         The components of intangibles and other assets were as follows at the
         indicated dates:

<TABLE>
<CAPTION>
(in thousands)                    September 30, 1999                                      September 30, 2000
                           ---------------------------------            -------------------------------------------------------
                           Propane    Heating Oil    Total              Propane    Heating Oil    TG&E      Partners     Total
                           -------    -----------    -------            --------   -----------    ----      --------   --------
<S>                        <C>        <C>            <C>                <C>         <C>           <C>       <C>        <C>
Goodwill                   $ 28,858    $146,764     $175,622            $ 36,622     $150,807   $  6,629    $     --   $194,058
Covenants not to
   compete                    2,361          --        2,361               3,586        3,314         --          --      6,900
Customer lists               38,004      94,842      132,846              41,272      102,759      6,077          --    150,108
Deferred charges              3,102       2,760        5,862               3,546        3,300         --         161      7,007
                           --------    --------     --------            --------     --------   --------    --------   --------
  Total intangibles          72,325     244,366      316,691              85,026      260,180     12,706         161    358,073
Less accumulated
   amortization              17,604       7,839       25,443              22,290       24,430        361           3     47,084
                           --------    --------     --------            --------     --------   --------    --------   --------
  Net intangibles            54,721     236,527      291,248              62,736      235,750     12,345         158    310,989
Other assets                    217         454          671                 267          319      1,829                  2,415
                           --------    --------     --------            --------     --------   --------    --------   --------
  Intangibles and
   other assets            $ 54,938    $236,981     $291,919            $ 63,003     $236,069   $ 14,174    $    158   $313,404
                           ========    ========     ========            ========     ========   ========    ========   ========
</TABLE>


         In 1999 the Partnership acquired Petro in a four part transaction
         ("Star Gas / Petro Transaction"), which closed concurrently. This
         acquisition was accounted for under the purchase method of accounting.

         Merger and Exchange
         -------------------
         Petro, Star Gas Partners and Star Gas Propane entered into a merger
         agreement (the "merger agreement"). Under the terms of the merger
         agreement, a newly formed subsidiary of Star Gas Propane was merged
         with Petro, with Petro surviving the merger as a wholly owned indirect
         subsidiary of Star Gas Propane.

         As a result of the merger:
         .  each outstanding share of Petro Class A common stock, par value
            $0.10 per share, and Petro Class C common stock, par value $0.10 per
            share, other than shares that were exchanged (the "Exchange"), was
            converted into 0.11758 senior subordinated units (2,476,797 senior
            subordinated units issued in total);

         .  each outstanding share of Petro junior convertible preferred stock
            was converted into 0.13064 common units (102,848 total common
            units); and

         .  each outstanding share of Petro Series C exchangeable preferred
            stock due 2009 was converted into the right to receive $10.69 in
            cash per share plus accrued and unpaid dividends, except for an
            aggregate of 505,000 shares of Series C preferred stock that were
            converted into an aggregate of 400,531 common units, plus accrued
            and unpaid dividends on the preferred, with the right to receive an
            additional 175,000 Senior Subordinated Units contingent upon Petro
            achieving certain operating results.

                                     F-16
<PAGE>

7)       Intangibles and Other Assets - (continued)

The Exchange occurred immediately prior to the merger and was comprised of the
following elements.

         (a) Certain holders of Petro common stock, consisting of Irik P. Sevin,
         Audrey L. Sevin, Hanseatic Corp. and Hanseatic Americas Inc., who are
         referred to as the "LLC Owners," formed Star Gas LLC, to which they
         contributed their outstanding shares of Petro common stock in exchange
         for all of the limited liability company interests in Star Gas LLC.
         Star Gas LLC contributed those shares to Star Gas Partners in exchange
         for general partner units (325,729 general partner units). In addition,
         the LLC Owners contributed their remaining shares of Petro common stock
         to Star Gas Partners in exchange for junior subordinated units (345,364
         junior subordinated units).

         (b) Other Petro common stockholders who were affiliates of Petro
         contributed shares of Petro common stock to Star Gas Partners in
         exchange for Star Gas Partners senior subordinated units. The senior
         subordinated units, junior subordinated units and general partnership
         units can earn, pro rata, 303,000 additional senior subordinated units
         each year that the heating oil segment meets certain financial goals. A
         maximum of 909,000 additional senior subordinated units can be issued.

         Financings and Refinancings
         ---------------------------
         Star Gas Partners offered and sold to the public 9.0 million common
         units in an equity offering (including 230,000 overallotment common
         units), the net proceeds of which were approximately $118.8 million.
         Petro offered and sold, in a private placement, $90.0 million of senior
         secured notes, the net proceeds of which were approximately $87.6
         million. Star Gas Partners and Petro Holdings guaranteed the notes.

         All of the $118.8 million of net proceeds of the equity offering,
         together with the $87.6 million of net proceeds from the debt offering
         and $5.4 million of Petro's cash were used:

         .  to redeem $80.2 million principal amount of Petro's 12 1/4% Senior
            Subordinated Debentures due 2005, $48.7 million principal amount of
            Petro's 10 1/8% Senior Subordinated Notes due 2003, $74.3 million
            principal amount of Petro's 9 3/8% Senior Subordinated Debentures
            due 2006 and the $17.4 million of Petro's 12 7/8% preferred stock at
            an aggregate redemption price of $201.3 million;

         .  to repurchase Petro's 1989 preferred stock at an aggregate
            redemption price of $4.2 million; and

         .  to pay $6.3 million  of the expenses of the transaction.

         In addition, Star Gas Partners issued 0.4 million of common units to
         redeem certain holder's $12.6 million Petro 12 7/8% preferred stock.

         New General Partner
         -------------------
         Since Star Gas Corporation is a wholly-owned subsidiary of Petro, which
         became a subsidiary of the Partnership in the transaction, it was no
         longer able to serve as Star Gas Partners' general partner. Star Gas
         Partners' new general partner is Star Gas LLC, which is owned by the
         LLC Owners. The Partnership agreement allows for the removal of the
         General Partner by a 2/3 vote of the common unitholders. Star Gas LLC's
         sole business activity is being the general partner.

         Amendment of Partnership Agreement
         ----------------------------------
         In order to complete the transaction, certain amendments to the
         Partnership agreement were required, including increasing the Minimum
         Quarterly Distribution ("MQD") from $0.55 to $0.575 per unit, or $2.30
         per unit annually. The increase in the MQD raised the threshold needed
         to end the subordination period (see footnote 3).

                                     F-17
<PAGE>

7)       Intangibles and Other Assets - (continued)

         The table below summarizes the allocation by the Partnership of the
         excess of purchase price over book value related to the 1999
         acquisition of Petro. The allocation of the purchase price was based on
         the results of an appraisal of property, plant and equipment, customer
         lists and the March 26, 1999 recorded values for tangible assets and
         liabilities as follows:

<TABLE>
<CAPTION>
                                                                                             (in thousands)
         <S>                                                                                  <C>
         Consideration given for the exchange of Petro shares                                 $   20,822

         Fair market value of Petro's assets and liabilities as of March 26,
         1999:
               Current assets                                                                   (107,102)
               Property, plant and equipment                                                     (40,109)
               Value of Petro's investment in the Partnership                                    (21,864)
               Current liabilities                                                                78,792
               Long-term debt                                                                    276,568
               Deferred income taxes                                                              12,000
               Other liabilities                                                                   7,251
               Preferred stock                                                                    12,978
               Junior preferred stock                                                              1,459
                                                                                              ----------
                  Sub-total                                                                      219,973
                                                                                              ----------
               Total value assigned to intangibles and other assets                           $  240,795
                                                                                              ==========

               Consisting of:  Customer lists                                                 $   94,000
                               Goodwill                                                          146,080
                               Other assets                                                          715
                                                                                              ----------
                                    Total                                                     $  240,795
                                                                                              ==========
</TABLE>

         The fair market value for property, plant and equipment, excluding real
         estate, was established using the replacement cost approach method. The
         market approach was used in valuing the real estate. The value assigned
         to customer lists was derived using a discounted cash flow analysis.
         The cash attributable to the customer lists were discounted back at an
         equity risk adjusted cost of capital to the net present value. Any
         excess was attributable to goodwill.

8)       Long-Term Debt and Bank Facility Borrowings

         Long-term debt consisted of the following at the indicated dates:

<TABLE>
<CAPTION>
                                                                                September 30,            September 30,
       (in thousands)                                                               1999                     2000
                                                                               ----------------         ---------------
       <S>                                                                     <C>                      <C>
       Propane Segment:
       8.04% First Mortgage Notes (a)                                              $  85,000               $  85,000
       7.17% First Mortgage Notes (a)                                                 11,000                  11,000
       8.70% First Mortgage Notes (a)                                                      -                  27,500
       Acquisition Facility Borrowings (b)                                             6,300                   7,500
       Working Capital Facility Borrowings (b)                                         3,150                     800

       Heating Oil Segment:
       7.92% Senior Notes (c)                                                         90,000                  90,000
       9.0% Senior Notes (d)                                                          62,697                  61,779
       10.25% Senior and Subordinated Notes (e)                                        4,246                   4,137
       Working Capital Facility Borrowings (f)                                             -                  17,000
       Acquisition Facility Borrowings (f)                                             7,000                  34,000
       Acquisition Notes Payable (g)                                                   8,764                   1,135
       Subordinated Debentures (h)                                                     3,022                   3,015

       TG&E Segment:
       Working Capital Facility Borrowings (i)                                             -                   6,600
       Acquisition Facility Borrowings(i)                                                  -                   1,400
       14.5% Junior Convertible Subordinated Notes Payable(j)                              -                     463
                                                                                   ---------               ---------
                                                                                     281,179                 351,329
       Less current maturities                                                        (1,391)                (16,515)
       Less working capital facility borrowings                                       (3,150)                (24,400)
                                                                                   ---------               ---------
                Total                                                              $ 276,638               $ 310,414
                                                                                   =========               =========
</TABLE>

                                     F-18
<PAGE>

8)       Long-Term Debt and Bank Facility Borrowings - (continued)

         (a) In December 1995, Star Gas Propane assumed $85.0 million of first
         mortgage notes (the "First Mortgage Notes") with an annual interest
         rate of 8.04% in connection with the initial Partnership formation. In
         January 1998, Star Gas Propane issued an additional $11.0 million of
         First Mortgage Notes with an annual interest rate of 7.17%. In March
         2000, the Star Gas Propane segment issued $27.5 million of 8.70% First
         Mortgage Notes. Obligations under the First Mortgage Note Agreements
         are secured, on an equal basis with Star Gas Propane's obligations
         under the Star Gas Propane Bank Credit Facilities, by a mortgage on
         substantially all of the real property and liens on substantially all
         of the operating facilities, equipment and other assets of Star Gas
         Propane. The First Mortgage Notes will require semiannual prepayments,
         without premium on the principal thereof, beginning on March 15, 2001
         and have a final maturity of March 30, 2015. Interest on the Notes is
         payable semiannually in March and September. The First Mortgage Note
         Agreements contain various restrictive and affirmative covenants
         applicable to Star Gas Propane; the most restrictive of these covenants
         relate to the incurrence of additional indebtedness and restrictions on
         dividends, certain investments, guarantees, loans, sales of assets and
         other transactions.

         (b) The Star Gas Propane Bank Credit Facilities currently consist of a
         $25.0 million Acquisition Facility and a $18.0 million Working Capital
         Facility. At September 30, 2000, $7.5 million and $0.8 million was
         borrowed under the Acquisition Facility and Working Capital Facility,
         respectively. The agreement governing the Bank Credit Facilities
         contains covenants and default provisions generally similar to those
         contained in the First Mortgage Note Agreements. The Bank Credit
         Facilities bear interest at a rate based upon, at the Partnership's
         option, either the London Interbank Offered Rate plus a margin or a
         Base Rate (each as defined in the Bank Credit Facilities). The
         Partnership is required to pay a fee for unused commitments which
         amounted to $0.1 million in each of fiscal years ending September 30,
         1998, through September 30, 2000. For fiscal 1999 and 2000, the
         weighted average interest rate on borrowings under these facilities was
         7.13% and 8.68%, respectively. At September 30, 2000 the interest rate
         on the borrowings outstanding was 8.25%.

         In November 2000, the Working Capital Facility was extended and will
         expire on June 30, 2003, but may be extended annually thereafter with
         the consent of the banks. Borrowings under the Acquisition Facility,
         based upon the extension, will revolve until September 30, 2002, after
         which time any outstanding loans thereunder, will amortize in quarterly
         principal payments with a final payment due on September 30, 2005.
         However, there must be no amount outstanding under the Working Capital
         Facility for at least 30 consecutive days during each fiscal year.

         (c) Petro issued $90.0 million of 7.92% Senior Secured Notes in six
         separate series in a private placement to institutional investors as
         part of its acquisition by the Partnership. The Senior Secured Notes
         are guaranteed by Star Gas Partners and are secured equally and ratably
         with Petro's existing senior debt and bank credit facilities by Petro's
         cash, accounts receivable, notes receivable, inventory and customer
         list. Each series of Senior Secured Notes will mature between April 1,
         2003 and April 1, 2014. Only interest on each series is due
         semiannually. On the last interest payment date for each series, the
         outstanding principal amount is due and payable in full.

         The note agreements for the senior secured notes contain various
         negative and affirmative covenants, the most restrictive of the
         covenants include restrictions on payment of dividends or other
         distributions by Star Gas Partners on any partnership interest if the
         ratio of consolidated pro forma operating cash flow to consolidated pro
         forma interest expense, do not meet the requirements in the agreement
         for the period of the four most recent fiscal quarters ending on or
         prior to the date of the dividend or distribution.

         (d) The Petro 9.0% Senior Secured Notes which pay interest semiannually
         were issued under agreements that are substantially identical to the
         agreements under which the $90.0 million of Senior Secured Notes were
         issued, including negative and affirmative covenants. The 9.0% Senior
         Notes are guaranteed by Star Gas Partners. The notes have various
         sinking fund payments of which the largest are $15.5 million due on
         October 1, 2000, $15.4 million due on October 1, 2001 and a final
         maturity payment of $30.3 million due on October 1, 2002. All such
         notes are redeemable at the option of the Partnership, in whole or in
         part upon payment of a premium as defined in the note agreement. The
         holders of these notes have the right to extend each of the above
         mentioned maturities for a one year period at an annual rate of 10.9%.
         This election was exercised in August 2000, extending $11.2 million of
         the original maturities of October 1, 2000 to October 1, 2001.

                                      F-19
<PAGE>

8)       Long-Term Debt and Bank Facility Borrowings - (continued)

         (e) The Petro 10.25% Senior and Subordinated Notes which pay interest
         quarterly also were issued under agreements that are substantially
         identical to the agreements under which the $90.0 million and the 9.0%
         Senior Notes were issued. These notes are also guaranteed by Star Gas
         Partners. Petro is required to repay quarterly payments totaling $2.1
         million in fiscal 2001 and to make a final maturity payment of $2.0
         million on January 15, 2002. No premium is payable in connection with
         these required payments. In connection with a one year extension
         exercised by the noteholders the interest rate increased to 14.1%.

         (f) The Petro Bank Facilities consist of three separate facilities; a
         $40 million working capital facility, a $10 million insurance letter of
         credit facility and a $50 million acquisition facility. At September
         30, 2000, $17.0 million was outstanding under the working capital
         facility; $9.8 million of the insurance letter of credit was used;
         $34.0 million was outstanding under the acquisition facility, along
         with an additional $0.7 million outstanding from the acquisition
         facility in the form of letter of credits (see footnote g below). The
         working capital facility and letter of credit facility will expire on
         June 30, 2001. The acquisition facility will convert to a term loan on
         June 30, 2001 which will be payable in eight equal quarterly principal
         payments. Amounts borrowed under the working capital facility are
         subject to a requirement to maintain a zero balance for 45 consecutive
         days during the period from April 1 to September 30 of each year. In
         addition, each facility will bear an interest rate that is based on
         either the London Interbank Offer Rate or another base rate plus a set
         percentage. The bank facilities agreement contains covenants and
         default provisions generally similar to those contained in the note
         agreement for the senior secured notes. The heating oil segment is
         required to pay a commitment fee which amounted to $0.3 million for
         fiscal 1999 and $0.5 million for fiscal 2000. For fiscal 1999 and 2000,
         the weighted average interest rate in borrowings under these facilities
         was 8.19% and 8.15%, respectively. As of September 30, 2000 the
         interest rate on the borrowings outstanding was 9.27%. In December 2000
         the working capital facility was increased to $70.0 million and up to
         $20.0 million of the acquisition facility can be used for working
         capital purposes.

         (g) These Petro notes were issued in connection with the purchase of
         fuel oil dealers and other notes payable and are due in monthly and
         quarterly installments. Interest is at various rates ranging from 7% to
         15% per annum, maturing at various dates through 2004. Approximately
         $0.7 million of letter of credits issued under the Petro Bank
         Acquisition Facility are issued to support these notes.

         (h) Petro also has outstanding $1.3 million of 10 1/8% Subordinated
         Debentures due 2003, $0.7 million of 9 3/8% Subordinated Notes due 2006
         and $1.1 million of 12 1/4% Subordinated Notes due 2005. In October
         1998, the indentures under which the 10 1/8%, 9 3/8% and 12 1/4%
         subordinated notes were issued were amended to eliminate substantially
         all of the covenants provided by the indentures.

         (i) The TG&E Bank Facilities currently consist of a $3.0 million
         Acquisition Facility and a $10.0 million Working Capital Facility and
         are secured by substantially all of the assets of TG&E. At September
         30, 2000, $1.4 million and $6.6 million was borrowed under the
         Acquisition Facility and Working Capital Facility, respectively. These
         facilities are guaranteed by Star Gas Partners, such guarantee being
         subordinate to the Petro guarantee. The agreement covering the Bank
         Credit Facilities contains various restrictive and affirmative
         covenants and default provisions applicable to TG&E; the most
         restrictive of these covenants relate to the incurrence of additional
         indebtedness and restrictions on certain investments, guarantees,
         loans, sale of assets and other transactions. The Bank Credit
         Facilities bear interest at a rate based upon, at the Partnership's
         option, either the London Interbank Offered Rate plus a margin or a
         Base Rate (each as defined in the Bank Credit Facilities). The
         Partnership is required to pay a fee for unused commitments which
         amounts to less than $0.1 million for fiscal 2000. For fiscal 2000, the
         weighted average interest rate on borrowings under these facilities was
         9.90%. At September 30, 2000 the interest rate on the borrowings
         outstanding was 10.03%.

         The Working Capital Facility will expire on April 5, 2001. The
         Acquisition Facility will revolve until April 5, 2001, after which time
         any outstanding loans thereunder, will be due as a single payment
         eighteen months thereafter.

         (j) These TG&E notes were issued to the minority interest equity
         holders of TG&E and are due on December 31, 2005. The notes bear
         interest at a rate of 14.5% and are convertible, at the option of the
         holder, into common shares of TG&E at the rate of one share for each
         $23.333 in principal amount of the convertible notes.

                                      F-20
<PAGE>

 8)      Long-Term Debt and Bank Facility Borrowings - (continued)

         As of September 30, 2000, the Partnership was in compliance with all
         debt covenants. As of September 30, 2000, the maturities during fiscal
         years ending September 30 are set forth in the following table:

                                                             (in thousands)
                                      2001                       $ 40,915
                                      2002                         57,597
                                      2003                         69,133
                                      2004                         18,661
                                      2005                         21,749
                                      Thereafter                  143,274
                                                                ---------
                                                                 $351,329
                                                                =========
 9)      Acquisitions

         During fiscal 2000, the Partnership acquired nine unaffiliated retail
         heating oil dealers, five unaffiliated retail propane dealers and a
         72.7% controlling interest in an electricity and natural gas reseller
         (see footnote 1). The aggregate consideration for these acquisitions
         accounted for by the purchase method of accounting was approximately
         $59.6 million.

         During fiscal 1999, the Partnership acquired three unaffiliated retail
         propane dealers with an aggregate cost of $16.2 million and also
         acquired Petro. The Partnership has also acquired three unaffiliated
         heating oil dealers with an aggregate cost of $1.7 million during
         fiscal 1999.

         During fiscal 1998, the Partnership acquired seven unaffiliated retail
         propane dealers with an aggregate cost of $35.6 million.

         The following table indicates the allocation of the aggregate purchase
         price paid and the respective periods of amortization assigned for the
         1999 and 2000 acquisitions other than for Petro (see Intangibles and
         Other Assets footnote):

         (in thousands)                     1999         2000     Useful Lives
                                            ----         ----     ------------
         Land                             $   288      $ 1,794               -
         Buildings                            400          650        30 years
         Furniture and equipment               35          679        10 years
         Fleet                              1,082        4,103      5-30 years
         Tanks and equipment                6,738       16,049      5-30 years
         Customer lists                     4,817       17,458      7-15 years
         Restrictive covenants                 21        4,539         5 years
         Goodwill                           3,886       18,170        25 years
         Minority interest                      -        1,578               -
         Working capital                      630       (5,396)              -
                                          -------      -------
             Total                        $17,897      $59,624
                                          =======      =======

         The acquisitions were accounted for under the purchase method of
         accounting. Purchase prices have been allocated to the acquired assets
         and liabilities based on their respective fair market values on the
         dates of acquisition. The purchase prices in excess of the fair values
         of net assets acquired were classified as intangibles in the
         Consolidated Balance Sheets. Sales and net income have been included in
         the Consolidated Statements of Operations from the respective dates of
         acquisition.

         The following unaudited pro forma information presents the results of
         operations of the Partnership and the acquisitions previously
         described, as if the acquisitions had taken place on October 1, 1998.

<TABLE>
<CAPTION>
         (in thousands)                                                          Years Ended September 30,
                                                                                 -------------------------
                                                                                   1999              2000
                                                                                ----------        ----------
         <S>                                                                    <C>               <C>
         Sales                                                                  $  610,231        $  798,012
                                                                                ==========        ==========

         Net income (loss)                                                      $   (2,882)       $    2,978
                                                                                ==========        ==========

         General Partner's interest in net income (loss)                        $      (59)       $       53
                                                                                ==========        ==========

         Limited Partners' interest in net income (loss)                        $   (2,823)       $    2,925
                                                                                ==========        ==========

         Basic and Diluted net income (loss) per limited partner unit           $    (0.15)       $     0.15
                                                                                ==========        ==========
</TABLE>

                                      F-21
<PAGE>

10)      Employee Benefit Plans

         Propane Segment

         The propane segment has a 401(k) plan which covers certain eligible
         non-union and union employees. Subject to IRS limitations, the 401(k)
         plan provides for each employee to contribute from 1.0% to 15.0% of
         compensation. The propane segment contributes to non-union participants
         a matching amount up to a maximum of 3.0% of compensation. Aggregate
         matching contributions made to the 401(k) plan during fiscal 1998, 1999
         and 2000 were $0.3 million, $0.3 million and $0.4 million,
         respectively. The propane segment also makes monthly contributions on
         behalf of its union employees to a union sponsored defined benefit plan
         which amounted to $0.4 million for each of the fiscal years 1998
         through 2000.

         Heating Oil Segment

         The heating oil segment has a 401(k) plan which covers certain eligible
         non-union and union employees. Subject to IRS limitations, the 401(k)
         plan provides for each employee to contribute from 1.0% to 17.0% of
         compensation. The Partnership makes a 4% core contribution of a
         participant's compensation and matches 2/3 of each amount a participant
         contributes up to a maximum of 2.0% of a participant's compensation.
         The Partnership's aggregate contributions to the heating oil segment's
         401(k) plan during fiscal 1999 and 2000 were $1.5 million and $3.1
         million, respectively.

         As a result of the Petro acquisition, the Partnership assumed Petro's
         pension liability. Effective December 31, 1996, the heating oil segment
         consolidated all of its defined contribution pension plans and froze
         the benefits for nonunion personnel covered under defined benefit
         pension plans. In 1997, the heating oil segment froze the benefits of
         its New York City union defined benefit pension plan as a result of
         operation consolidations. Benefits under the frozen defined benefit
         plans were generally based on years of service and each employee's
         compensation. The Partnership's pension expense for all defined benefit
         plans during fiscal 1999 and 2000 were $0.2 million and $0.3 million,
         respectively.

         The following tables provide a reconciliation of the changes in the
         heating oil segment's plan benefit obligations, fair value of assets,
         and a statement of the funded status at the indicated dates:

<TABLE>
<CAPTION>
         (in thousands)                                                  Nine Months Ended      Year Ended
                                                                            September 30,      September 30,
         Reconciliation of Benefit Obligations                                  1999               2000
         -------------------------------------                           ------------------  -----------------
         <S>                                                             <C>                 <C>
         Benefit obligations at beginning of year                              $  27,377          $ 24,486
         Service cost                                                                  -                 -
         Interest cost                                                             1,300             1,778
         Actuarial (gain) loss                                                    (2,346)              624
         Benefit payments                                                         (1,112)           (1,524)
         Settlements                                                                (733)           (1,343)
                                                                           ----------------  -----------------
         Benefit obligation at end of year                                     $  24,486         $  24,021
                                                                           ================  =================

         Reconciliation of Fair Value of Plan Assets
         -------------------------------------------
         Fair value of plan assets at beginning of year                        $  21,038         $  21,069
         Actual return on plan assets                                                 75             1,217
         Employer contributions                                                    1,801             2,054
         Benefit payments                                                         (1,112)           (1,524)
         Settlements                                                                (733)           (1,343)
                                                                           ----------------  -----------------
         Fair value of plan assets at end of year                              $  21,069         $  21,473
                                                                           ================  =================

         Funded Status
         -------------
         Benefit obligation                                                    $  24,486         $  24,021
         Fair value of plan assets                                                21,069            21,473
         Unrecognized transition (asset) obligation                                  (30)                -
         Unrecognized prior service cost                                               -                 -
         Unrecognized net actuarial (gain) loss                                   (1,445)             (659)
                                                                           ---------------   -----------------
         Prepaid (accrued) benefit cost                                        $  (4,892)        $  (3,207)
                                                                           ===============   =================

         Weighted-Average Assumptions Used in the Measurement of the
         -----------------------------------------------------------
         Company's Benefit Obligation as of the period indicated
         -------------------------------------------------------
         Discount rate                                                               7.5%              7.5%
         Expected return on plan assets                                              8.5%              8.5%
         Rate of compensation increase                                               N/A               N/A
</TABLE>

         In addition, the heating oil segment made contributions to union-
         administered pension plans of $1.1 million for fiscal 1999 and $2.2
         million for fiscal 2000.

                                      F-22
<PAGE>

11)      Income Taxes

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

                  (in thousands)               Years Ended September 30,
                                        -----------------------------------
                                        1998            1999           2000
                                        ----            ----           ----
                  Current:
                   Federal              $  -        $      -          $   -
                   State                  25             166            492
                  Deferred                 -         (14,946)             -
                                        ----        --------          -----
                                        $ 25        $(14,780)         $ 492
                                        ====        ========          =====


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

<TABLE>
<CAPTION>
                  (in thousands)                                                                   Years Ended September 30,
                                                                                                -------------------------------
                                                                                                   1999                  2000
                                                                                                   ----                  ----
                  <S>                                                                           <C>                   <C>
                  Excess of tax over book (book over tax) depreciation                          $    401              $   (619)
                  Excess of (book over tax) amortization expense                                  (1,324)               (2,252)
                  Excess of tax over book (book over tax) vacation expense                           146                  (172)
                  Excess of tax over book restructuring expense                                       88                   212
                  Excess of tax over book (book over tax) bad debt expense                           305                  (118)
                  Excess of tax over book supplemental benefit expense                                49                   262
                  Excess of tax over book pension contribution                                       342                   692
                  Other, net                                                                         (12)                   12
                  Utilization of net operating loss carryforward                                       -                 2,054
                  Recognition of tax benefit of net operating loss to the extent
                    of current and previous recognized temporary differences                     (14,941)                    -
                  Change in valuation allowance                                                        -                   (71)
                                                                                                --------             ---------
                                                                                                $(14,946)            $       -
                                                                                                ========             =========
</TABLE>

         The components of the net deferred taxes and the related valuation
         allowance for the years ended September 30, 1999 and September 30, 2000
         using current rates are as follows:

<TABLE>
<CAPTION>
                  (in thousands)                                                                  Years Ended September 30,
                                                                                                -------------------------------
                  Deferred Tax Assets:                                                            1999                  2000
                  --------------------                                                            ----                  ----
                  <S>                                                                           <C>                   <C>
                  Net operating loss carryforwards                                              $ 28,525              $ 26,471
                  Excess of book over tax vacation expense                                         1,757                 1,929
                  Excess of book over tax restructuring expense                                      534                   322
                  Excess of book over tax bad debt expense                                           270                   388
                  Excess of book over tax supplemental benefit expense                               709                   447
                  Other, net                                                                         321                   309
                                                                                                --------              --------
                    Total deferred tax assets                                                     32,116                29,866
                  Valuation allowance                                                            (16,448)              (16,377)
                                                                                                --------              --------
                      Net deferred tax assets                                                   $ 15,668              $ 13,489
                                                                                                ========              ========

                  Deferred Tax Liabilities:
                  -------------------------
                  Excess of tax over book depreciation                                          $  7,596              $  6,977
                  Excess of tax over book amortization                                             7,014                 4,762
                  Excess of tax over book pension contribution                                     1,058                 1,750
                                                                                                --------              --------
                    Total deferred tax liabilities                                              $ 15,668              $ 13,489
                                                                                                ========              ========

                    Net deferred taxes                                                          $      -              $      -
                                                                                                ========              ========

</TABLE>

                                      F-23
<PAGE>

11)      Income Taxes - (continued)

         In order to fully realize the net deferred tax assets the Partnership's
         corporate subsidiaries will need to generate future taxable income. A
         valuation allowance is provided when it is more likely than not that
         some portion of the deferred tax asset will not be realized. Based upon
         the level of current taxable income and projections of future taxable
         income of the Partnership's corporate subsidiaries over the periods
         which the deferred tax assets are deductible, management believes it is
         more likely than not that the Partnership will realize the benefits of
         these deductible differences, net of existing valuation allowance at
         September 30, 2000. The amount of deferred tax assets considered
         realizable, however, could be reduced if estimates of future taxable
         income during the carryforward period are reduced.

         At September 30, 2000, the Company had net income tax loss
         carryforwards for Federal income tax reporting purposes of
         approximately $66 million of which approximately $20.3 million are
         limited in accordance with Federal income tax law. The losses are
         available to offset future Federal taxable income through 2019.

12)      Lease Commitments

         The Partnership has entered into certain operating leases for office
         space, trucks and other equipment.

         The future minimum rental commitments at September 30, 2000 under
         operating leases having an initial or remaining non-cancelable term of
         one year or more are as follows:

<TABLE>
<CAPTION>
             (in thousands)                           Heating Oil          Propane
                                                         Segment           Segment            TG&E               Total
                                                         -------           -------            ----               -----
             <S>                                      <C>                <C>              <C>                <C>
             2001                                     $   3,226          $   1,618        $      70          $   4,914
             2002                                         3,157              1,430               72              4,659
             2003                                         3,481              1,183               74              4,738
             2004                                         3,455                853                -              4,308
             2005                                         2,942                122                -              3,064
             Thereafter                                  17,047                133                -             17,180
                                                      ---------          ---------        ---------          ---------
             Total minimum lease payments             $  33,308          $   5,339        $     216          $  38,863
                                                      =========          =========        =========          =========
</TABLE>

         The Partnership's rent expense was $1.2 million, $4.4 million and $8.0
         million in 1998, 1999 and 2000, respectively.

13)      Unit Grants

         In June 2000, the Partnership granted 552 thousand restricted senior
         subordinated units to senior management and outside directors. These
         units were granted under the Partnership's Employee and Director
         Incentive Unit Plans. One-fifth of the units immediately vested with
         the remaining units vesting annually in four equal installments if the
         Partnership achieves specified performance objectives for each of the
         respective fiscal years. The Partnership recognized $649 of unit
         compensation expense for these units for the year ended September 30,
         2000.

         In September 2000, the Partnership granted 350 thousand unit
         appreciation rights and 87 thousand restricted senior subordinated
         units to Irik P. Sevin. The unit appreciation rights vest in four equal
         installments on January 31, 2001, December 1, 2001, December 1, 2002
         and December 1, 2003. The exercise price for these unit appreciation
         rights is $8.625. Mr. Sevin will be entitled to receive payment in cash
         for these rights equal to the excess of the fair market value of a
         senior subordinated unit on the vesting date over the exercise price.
         The grant of restricted senior subordinated units will invest in four
         equal installments on December 1 of 2001 through 2004. Distributions on
         the restrictive units will accrue to the extent declared.

                                      F-24
<PAGE>

14)      Supplemental Disclosure of Cash Flow Information

<TABLE>
<CAPTION>
             (in thousands)                                                       Years Ended September 30,
                                                                     -------------------------------------------
                                                                     1998              1999                2000
                                                                     ----              ----                ----
      <S>                                                           <C>               <C>               <C>
      Cash paid during the period for:

        Income taxes                                                $       8         $    106          $  4,047
        Interest                                                    $   7,915         $ 15,703          $ 28,912

      Non-cash investing activities:
      Acquisitions:
        Working capital                                             $  (1,945)
        Net long-term assets                                        $ (25,134)        $ (2,945)
        Assumption of debt                                          $  23,000
        Deferred income tax liability                                                 $  2,945
      Non-cash financing activities:
        Issuance of Common Units                                    $   3,999         $  6,858
        Additional General Partner interest                         $      80
        Redemption of preferred stock                                                 $ (6,858)
</TABLE>

15)      Commitments and Contingencies

         In the ordinary course of business, the Partnership is threatened with,
         or is named in, various lawsuits. The Partnership is not a party to any
         litigation which individually or in the aggregate could reasonably be
         expected to have a material adverse effect on the Partnership.

16)      Related Party Transactions

         Prior to March 26, 1999, the Partnership was managed by the Star Gas
         Corporation, a wholly owned subsidiary of Petro. Pursuant to the
         Partnership Agreement that was in effect at the time, Star Gas
         Corporation was entitled to reimbursement for all direct and indirect
         expenses incurred or payments it made on behalf of the Partnership, and
         all other necessary or appropriate expenses allocable to the
         Partnership or otherwise reasonably incurred by Star Gas Corporation in
         connection with operating the Partnership's business. Indirect expenses
         were allocated to the Partnership on a basis consistent with the type
         of expense incurred. For example, services performed by employees of
         Star Gas Corporation on behalf of the Partnership were reimbursed on
         the basis of hours worked and rent expense was reimbursed on the
         proportion of the square footage leased by the Partnership. For the
         fiscal years ended September 30, 1998 and 1999 (until the Star Gas /
         Petro Transaction resulting in Star Gas Corporation being replaced as
         the General Partner by Star Gas LLC), the Partnership reimbursed Star
         Gas Corporation and Petro $19.6 million and $10.2 million,
         respectively, representing salary, payroll tax and other compensation
         paid to the employees of the Star Gas Corporation. In addition, the
         Partnership reimbursed Petro $0.8 million and $0.4 million for the
         fiscal years ended September 30, 1998 and 1999, respectively, relating
         to the Partnership's share of the costs incurred by Petro in conducting
         the operations of a certain shared branch location which included
         managerial services.

17)      Subsequent Events

         Cash Distribution

         On October 25, 2000, the Partnership announced that it would pay cash
         distributions of $0.575 per Common Unit and $0.25 per unit on its
         Senior Subordinated Units. The distributions were paid on November 14,
         2000 to holders of record as of November 8, 2000.

         Debt Refinancing

         On October 25, 2000, the heating oil division completed a refinancing
         of $40 million of indebtedness incurred under its bank acquisition
         facility through the issuance of a like amount of senior notes to three
         institutional purchasers. The senior notes bear interest at the rate of
         8.96% per year and have an average life of seven and a quarter years
         with a final maturity date of November 1, 2010.

         Equity Offering

         During October and November 2000, the Partnership sold approximately
         1.5 million Common Units in a publicly underwritten offering. The
         offering price was $16.625 per unit. Approximately $12.8 million of the
         net proceeds were used to repay a portion of the amounts outstanding
         under the Partnership's bank acquisition facilities. The balance of the
         net proceeds were designated to fund acquisitions and for growth
         capital expenditures.

                                      F-25
<PAGE>

18)      Disclosures About the Fair Value of Financial Instruments

         Cash, Accounts Receivable, Notes Receivable and Other Current Assets,
         ---------------------------------------------------------------------
         Bank Facility Borrowings, Accounts Payable and Accrued Expenses
         ---------------------------------------------------------------

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

         Long-Term Debt
         --------------

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

         The estimated fair value of the Partnership's long-term debt is
         summarized as follows:

         (in thousands)     At September 30, 1999       At September 30, 2000
                           -----------------------      ---------------------
                           Carrying      Estimated     Carrying      Estimated
                            Amount      Fair Value      Amount       Fair Value
                            ------      ----------      ------       ----------
         Long-term debt     $278,029       $279,631      $326,929     $320,540

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

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

19)      Earnings Per Limited Partner Units

<TABLE>
<CAPTION>
             (in thousands, except per unit data)                                             September 30,
                                                                                  -----------------------------------------
                                                                                      1998            1999            2000
                                                                                      ----            ----            ----
             <S>                                                                  <C>              <C>             <C>
             Basic Earnings Per Unit:
             -----------------------
             Net income (loss)                                                      $  (955)       $(29,550)       $  1,353
             Less:  General Partner's interest in net income (loss)                     (19)           (587)             24
                                                                                    -------        --------        --------
              Limited Partner's interest in net income (loss)                       $  (936)       $(28,963)       $  1,329
                                                                                    =======        ========        ========

             Common Units                                                             3,639           8,830          15,438
             Senior Subordinated Units                                                    -           1,283           2,505
             Junior Subordinated Units                                                    -
                                                                                                        179             345
             Subordinated Units                                                       2,396           1,155               -
                                                                                    -------        --------        --------
              Weighted average number of Limited Partner units outstanding            6,035          11,447          18,288
                                                                                    =======        ========        ========

             Basic earnings (losses) per unit                                       $ (0.16)       $ (2.53)        $    .07
                                                                                    =======        ========        ========

             Diluted Earnings Per Unit:
             -------------------------
             Effect of dilutive securities                                          $     -        $      -        $      -
                                                                                    -------        --------        --------
              Limited Partner's interest in net income (loss)                       $  (936)       $(28,963)       $  1,329
                                                                                    =======        ========        ========

             Effect of dilutive securities                                                -               -               -
                                                                                    -------        --------        --------
              Weighted average number of Limited Partner units outstanding            6,035          11,447          18,288
                                                                                    =======        ========        ========

             Diluted earnings (losses) per unit                                     $ (0.16)       $ (2.53)        $    .07
                                                                                    =======        ========        ========
</TABLE>

                                      F-26
<PAGE>

20)    Selected Quarterly Financial Data (unaudited)

       The seasonal nature of the Partnership's business results in the sale by
       the Partnership of approximately 30% of its volume in the first fiscal
       quarter and 45% of its volume in the second fiscal quarter of each year.
       The Partnership generally realizes net income in both of these quarters
       and net losses during the quarters ending June and September.

       The results of operations for the year ended September 30, 1999 include
       Petro's results of operations from March 26, 1999. Since the heating oil
       division was acquired after the heating season, the results for the year
       ended September 30, 1999 include expected third and fourth fiscal
       quarters losses but do not include the profits from the heating season.
       Accordingly, results of operations for the year ended September 30, 1999
       presented are not indicative of the results to be expected for a full
       year. The TG&E acquisition was made on April 7, 2000. Accordingly, the
       results of operations for the year ended September 30, 2000 only include
       TG&E's results from April 7, 2000.

<TABLE>
<CAPTION>
           (in thousands)                                               Three Months Ended

                                        ----------------------------------------------------------------------------------
                                         December 31, 1999     March 31, 2000        June 30, 2000     September 30, 2000   Total
                                        -------------------- -------------------- -------------------- ------------------- -------
           <S>                          <C>                  <C>                  <C>                  <C>                 <C>
           Sales                              $ 186,886            $ 321,695            $ 130,163            $ 105,920     $744,664
           Operating income (loss)               16,080               58,930              (15,448)             (30,650)      28,912
           Income (loss) before taxes
              and minority interest               9,478               51,902              (22,197)             (37,589)       1,594

           Net income (loss)                      9,365               51,687              (21,991)             (37,708)       1,353
           Limited Partner interest in
             net income (loss)                    9,191               50,772              (21,617)             (37,017)       1,329
           Net income (loss) per
             Limited Partner Unit/(a)/        $    0.53            $    2.80            $   (1.15)           $   (1.95)    $    .07

<CAPTION>
                                                                      Three Months Ended
                                      -----------------------------------------------------------------------------------
                                         December 31, 1998     March 31, 1999      June 30, 1999     September 30, 1999     Total
                                      ----------------------------------------- -------------------- --------------------  -------
         <S>                            <C>                  <C>                  <C>                  <C>                   <C>
         Sales                                $  30,237            $  52,101            $  79,092            $  62,590     $224,020
         Operating income (loss)                  3,523               14,753              (18,226)             (28,598)     (28,548)
         Income (loss) before taxes               1,300               12,347              (23,575)             (34,402)     (44,330)
         Net income (loss)                        1,294               12,315              (18,213)             (24,946)     (29,550)
         Limited Partner interest in
            net income (loss)                     1,268               12,069              (17,849)             (24,451)     (28,963)
         Net income (loss) per
            Limited Partner Unit/(a)/         $    0.20            $    1.75            $   (1.11)           $   (1.47)    $  (2.53)
</TABLE>

       (a) The sum of the quarters do not add-up to the total due to the
       weighting of Limited Partner Units outstanding.




                                      F-27
<PAGE>

                                                                     Schedule II

                            Star Gas Partners, L.P.
                       VALUATION AND QUALIFYING ACCOUNTS
                 Years Ended September 30, 1998, 1999 and 2000
                                (in thousands)


<TABLE>
<CAPTION>
                                                                         Additions
                                                         --------------------------------------
                                             Balance at
                                          Beginning of Year      Charged to      Other Changes      Balance at
                                                       ----
  Year             Description                                Costs & Expenses    Add(Deduct)       End of Year
  ----             -----------                                ----------------    -----------       -----------
  <S>     <C>                                    <C>          <C>                 <C>               <C>
  1998    Allowance for doubtful accounts        $273                239               (260)/(a)/        $252
                                                 ====                ===               =====             ====


  1999    Allowance for doubtful accounts        $252                371              1,437/(b)/         $948
                                                 ====                ===              =====              ====
                                                                                     (1,112)/(a)/
                                                                                     =======
                                                                                      5,330/(c)/
  2000    Allowance for doubtful accounts        $948              2,669             (6,991)/(a)/      $1,956
                                                 ====              =====             =======           ======
</TABLE>


(a)  Bad debts written off (net of recoveries).
(b)  Amount acquired as part of the Petro acquisition.
(c)  Amount acquired as part of the TG&E acquisition.

                                      F-28