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

 
                                   FORM 10-K
 
          [X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995

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

                        COMMISSION FILE NUMBER 1-10066

                   SANTA FE PACIFIC PIPELINE PARTNERS, L.P.
            (Exact name of registrant as specified in its charter)

               DELAWARE                                 95-4191066
        (State of incorporation)           (I.R.S. Employer Identification No.) 

                          888 SOUTH FIGUEROA STREET 
                         LOS ANGELES, CALIFORNIA 90017
         (Address of principal executive offices, including zip code)
                                (213) 614-1095
             (Registrant's telephone number, including area code)
          
          Securities registered pursuant to Section 12(b) of the Act:

                                                 Name of each 
        Title of each class                exchange on which registered
        -------------------                ----------------------------
      Common Depositary 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 the Common Depositary Units held by non-affiliates
of the registrant as of March 18, 1996 was approximately $410 million.

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<PAGE>
 
                               TABLE OF CONTENTS

<TABLE>
<CAPTION>

                                                                                                Page
                                                                                                ----
                                    PART I
<S>                                                                                             <C>
Items 1 and 2.  Business and Properties.......................................................    1
 General......................................................................................    1
 Markets......................................................................................    2
 Principal Customers..........................................................................    3
 Capital Expenditures.........................................................................    3
 Description of the Pipeline System...........................................................    4
 Description of the Truck Loading Terminals...................................................    5
 Maintenance..................................................................................    5
 Competition and Business Considerations......................................................    6
 Regulation...................................................................................    7
 Employees....................................................................................    8
Item 3. Legal Proceedings.....................................................................    8
Item 4. Submission of Matters to a Vote of Security Holders...................................   13

                                    PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.................   14
Item 6. Selected Financial Data...............................................................   14
Item 7. Management's Discussion and Analysis of
         Financial Condition and Results of Operations........................................   15
Item 8. Financial Statements and Supplementary Data...........................................   21
Item 9. Changes in and Disagreements with Accountants on
         Accounting and Financial Disclosure..................................................   21

                                   PART III
Item 10. Directors and Executive Officers of the Registrant...................................   22
Item 11. Executive Compensation...............................................................   23
Item 12. Security Ownership of Certain Beneficial Owners and Management.......................   24
Item 13. Certain Relationships and Related Transactions.......................................   24

                                    PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.....................   25
Signatures....................................................................................   27
</TABLE>
<PAGE>
 
                   SANTA FE PACIFIC PIPELINE PARTNERS, L.P.

                                     PART I

ITEMS 1 AND 2.  BUSINESS AND PROPERTIES.

GENERAL
Santa Fe Pacific Pipeline Partners, L.P. (the "Registrant") is a Delaware
limited partnership formed in 1988 to acquire and operate, through SFPP, L.P.,
formerly Southern Pacific Pipe Lines Partnership, L.P. (the "Operating
Partnership"), the refined petroleum products pipeline business of Santa Fe
Pacific Corporation ("Santa Fe"). The Registrant and the Operating Partnership
are collectively referred to as the "Partnership".

Santa Fe Pacific Pipelines, Inc. (the "General Partner") is the sole general
partner of the Partnership. It owns a 1% general partnership interest in the
Registrant and also owns a 1% general partnership interest in the Operating
Partnership and manages the operations of both partnerships. The General Partner
also owns 8,148,148 common depositary units ("common units"), representing a
41.7% interest, in the Registrant. The General Partner is a wholly owned
subsidiary of SFP Pipeline Holdings, Inc., which is in turn a wholly owned
subsidiary of Santa Fe. In September 1995, Santa Fe and Burlington Northern Inc.
consummated a business combination pursuant to which Santa Fe became a
subsidiary of a new publicly-held company, Burlington Northern Santa Fe
Corporation ("BNSF"). 11,000,000 common units, representing 56.3% of the total
interests in the Partnership, are publicly held.

The Partnership is one of the largest independent pipeline common carriers of
refined petroleum products ("products") in the United States, and the largest in
the western United States, in terms of product deliveries, barrel miles, and
pipeline mileage, with approximately 3,300 miles of pipeline serving six states.

The Partnership transports products via pipeline, including gasoline, diesel
fuel and commercial and military jet fuel, primarily for major petroleum
companies, independent refiners, the United States military, and marketers and
distributors of such products. The Partnership also operates 14 truck loading
terminals and provides pipeline service to 44 customer-owned terminals, three
commercial airports, and 12 military bases. The Partnership's pipelines
(collectively, the "Pipeline System") are: (1) the South Line, which is composed
of two segments, the West Line, which transports products from Los Angeles to
Phoenix and Tucson, Arizona and various intermediate points, and the East Line,
which transports products from El Paso, Texas to Tucson, Phoenix and various
intermediate points; (2) the North Line, which transports products primarily
from the San Francisco Bay area to various cities in northern California and
western Nevada; (3) the Oregon Line, which transports products between Portland
and Eugene, Oregon, and one intermediate point; and (4) the San Diego Line,
which transports products from Los Angeles to San Diego, California and various
intermediate points. Substantially all of the Pipeline System's transportation
services constitute common carrier operations that are subject to federal or
state tariff regulation.

                                       1
<PAGE>
 
The following table reflects the total volumes and barrel miles of products
delivered by the Pipeline System for each of the years indicated:

<TABLE>
<CAPTION>

                          Total Volumes and Barrel Miles Transported (a)
                     ------------------------------------------------------

                             1995              1994              1993
                     ------------------- ------------------ ----------------
                                 Barrel            Barrel            Barrel
                        Volume   Miles    Volume   Miles    Volume   Miles
                     ---------  -------- -------- --------- ------- --------
<S>                     <C>      <C>      <C>      <C>      <C>      <C>
South Line
     West Line (b)..     121.7   23,439    118.9   22,151    112.0   21,214
     East Line......      24.5    8,320     25.3    8,819     20.7    7,188
North Line..........     155.4   12,709    152.3   12,545    149.0   12,891
Oregon Line.........      13.6    1,529     13.6    1,525     12.2    1,373
San Diego Line (b)..      39.1    4,013     39.7    4,030     38.8    3,913
                     ---------   ------  -------  -------   ------   ------
     Total..........     354.3   50,010    349.8   49,070    332.7   46,579
                     =========   ======  =======  =======   ======   ====== 
</TABLE>

  (a) Volumes are expressed in millions of barrels of products and barrel miles
  are shown in millions. A barrel mile is the movement of a barrel of product
  for a distance of one mile.

  (b) Product volumes delivered through the West Line to the San Diego Line are
  in turn delivered through the San Diego Line to the shipper's ultimate
  destination for such volumes. This table reflects such volumes only in the San
  Diego Line, from which ultimate delivery is made.

Although the mix of the products transported varies among the pipeline segments
constituting the Pipeline System, such variation is not substantial. Tariffs
charged for transportation do not vary for different product types. The
following table sets forth the volumes of gasoline, jet fuels and diesel fuel
transported by the Pipeline System during the years indicated (in millions of
barrels):

<TABLE>
<CAPTION>

                                Volumes Delivered by Product Type
                                ---------------------------------
                                   1995         1994        1993
                                --------       ------      ------
           <S>                     <C>          <C>         <C>
           Gasoline............    222.7        225.5       219.6
           Diesel fuel.........     70.7         67.3        59.1
           Jet fuels...........     60.9         57.0        54.0
                                --------       ------      ------
                Total..........    354.3        349.8       332.7
                                ========       ======      ======
           </TABLE>

MARKETS
The Partnership currently serves approximately 75 shippers in the refined
products market, with the largest customers consisting of major petroleum
companies, independent refiners, the United States military, and independent
marketers and distributors of products. The volume of products transported in
the Pipeline System is directly affected by the level of end-user demand for
such products in the geographic regions served by the Partnership. Such market
demand varies based upon the different end uses to which the products delivered
through the Pipeline System may be applied. A substantial portion of product
volumes transported in the Pipeline System is gasoline, the demand for which is
dependent on such factors as prevailing economic conditions and demographic
changes in the markets served by the Pipeline System and, to a lesser degree,
gasoline prices. Portions of the Partnership's business can experience seasonal
variations; however, overall volumes are only moderately seasonal, with lower
than average volumes typically being transported during the first and fourth
quarters of each year.

                                       2
<PAGE>
 
PRINCIPAL CUSTOMERS
Of the approximately 75 shippers served by the Partnership on a system-wide
basis in 1995, the largest shippers on each of the pipeline segments were
generally the same entities. The chart below reflects the percentage of
transportation revenues attributable to the top 10 shippers on the South Line,
North Line, Oregon Line and San Diego Line during each of the periods indicated,
based upon total product volumes shipped during the years indicated.

<TABLE>
<CAPTION>
                                   Revenue Percentage
                                 Attributable to Top 10
                                        Shippers
                              ---------------------------

                                1995      1994     1993
                              -------   -------   -------
<S>                           <C>       <C>       <C>
South Line
  West Line.................     85%       84%       85%
  East Line.................     98        95        90
North Line..................     82        80        81
Oregon Line.................    100        99        98
San Diego Line..............     92        92        93
</TABLE>

Between 72% and 75% of the refined petroleum products transported in the
Pipeline System during each of the calendar years 1993 through 1995 were shipped
by major petroleum companies. Operating revenue received from ARCO Products
Company and Chevron U.S.A. Products Company accounted for 16.3% and 13.3%,
respectively, of total 1995 revenue. These two customers accounted for 16.1% and
12.4%, respectively, of total 1994 revenue, and for 16.9% and 12.9%,
respectively, of total 1993 revenue. In addition, Texaco Refining and Marketing
Inc. accounted for 10.2% of total 1993 revenues.

Products delivered to military facilities accounted for 4.5%, 4.8% and 4.6% of
total volumes shipped by the Partnership during 1995, 1994 and 1993,
respectively. Military volumes are dependent on the level of activity at
military bases served by the Pipeline System. Since 1991, the United States
Congress has approved, and may continue to approve, ongoing plans to reduce the
overall level of military activity. As of year end 1995, several military bases
historically served by the Partnership had been closed and realignment of
certain other bases continues to occur, with the level of activity having
decreased at certain bases and increased at others. In January 1996, the
Partnership acquired a pipeline serving Lemoore Naval Air Station, near Fresno,
California.

CAPITAL EXPENDITURES
For the year ended December 31, 1995, Partnership capital expenditures
aggregated $31.4 million, of which approximately $12 million was used for income
enhancing projects, and the balance for sustaining projects. The planned 1996
capital program aggregates approximately $28 million, of which approximately $12
million is planned for income enhancing projects. The Partnership presently
anticipates that ongoing capital expenditures will average approximately $30
million per year over the next five years. This amount could increase or
decrease as the result of changing regulatory requirements or business
opportunities. (See also Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources.)

                                       3
<PAGE>
 
DESCRIPTION OF THE PIPELINE SYSTEM

The SOUTH LINE consists of two pipeline segments, the West Line and the East
Line:

The WEST LINE consists of approximately 555 miles of primary pipeline and
currently transports products for approximately 50 shippers from seven
refineries and three pipeline terminals in the Los Angeles Basin to Phoenix and
Tucson, Arizona and various intermediate commercial and military delivery
points. In 1995, 1994 and 1993, the West Line transported averages of 333,400,
325,600 and 307,000 barrels per day, respectively, of which averages of 111,700,
104,000 and 100,000 barrels per day, respectively, were delivered to Phoenix and
Tucson. Also, a significant portion of West Line volumes are transported to
Colton, California for local distribution and for delivery to Calnev Pipeline,
an unaffiliated common carrier of refined petroleum products to Las Vegas,
Nevada and intermediate points. The West Line serves Partnership terminals
located in Colton and Imperial, California as well as in Phoenix and Tucson.

The EAST LINE is comprised of two parallel lines originating in El Paso, Texas
and continuing approximately 300 miles west to the Tucson terminal and one line
continuing northwest approximately 130 miles from Tucson to Phoenix. All
products received by the East Line at El Paso come from one refinery in El Paso
or are delivered through connections with non-affiliated pipelines from
refineries in Odessa, Texas and Artesia, New Mexico. The East Line transports
refined petroleum products for approximately 20 shippers. In 1995, 1994 and
1993, the East Line transported averages of 67,200, 69,300 and 57,000 barrels
per day, respectively, of refined petroleum products, of which averages of
31,500, 34,100 and 27,000 barrels per day, respectively, were delivered to
Phoenix. Since August 1992, when the second phase of the East Line expansion
became operational, the daily pumping capacity between El Paso and Tucson has
been approximately 95,000 barrels, and the daily pumping capacity from Tucson to
Phoenix has been approximately 55,000 barrels. The East Line serves the
Partnership's terminals located in Tucson and Phoenix.

In late 1995, Diamond Shamrock, Inc. completed construction of a new products
pipeline from its refinery near Dumas, Texas to El Paso. The 10-inch diameter
line has a reported capacity of 27,000 barrels per day and was designed for
expansion to 50,000 barrels per day. In addition to supplying its El Paso area
demand, Diamond Shamrock has stated that it plans to connect this pipeline to
the Partnership's East Line for potential deliveries to Tucson and Phoenix.

Longhorn Partners Pipeline ("Longhorn") has announced plans to buy a pipeline
that has transported crude oil from West Texas to refineries on the Gulf Coast.
Longhorn, which is a joint venture involving Axis Gas Corp., Williams Pipe Line
Company and Beacon Energy Investment Fund L.P., plans to reverse the line and
modify it to transport up to 120,000 barrels per day of refined products to El
Paso and other destinations in Texas.

Increased product supply in the El Paso area could result in some shift of
volumes transported into Arizona from the Partnership's West Line to its East
Line. While increased movements into the Arizona market from El Paso displace
higher tariff volumes supplied from Los Angeles on the West Line, such shift of
supply sourcing has not had, and is not expected to have, a material effect on
the Partnership's results of operations.

The NORTH LINE of the Pipeline System consists of approximately 1,040 miles of
pipeline in six pipeline segments originating in Richmond, Concord and
Bakersfield, California. This line serves Partnership terminals located in
Brisbane, Bradshaw, Chico, Fresno and San Jose, California, and Sparks, Nevada.
The North Line delivers refined petroleum products for approximately 40
shippers. A substantial portion of the products delivered through the North Line
comes from refineries in the San Francisco

                                       4
<PAGE>
 
Bay area. A small percentage of supply is received from various pipeline and
marine terminals that deliver products from foreign and domestic ports.
Substantially all of the products shipped through the Bakersfield-Fresno segment
of the North Line are supplied by a refinery located in Bakersfield.

The OREGON LINE is a 114-mile pipeline serving approximately 10 shippers. The
Oregon Line receives products from marine terminals in Portland and from Olympic
Pipeline, a non-affiliated carrier, which transports products from the Puget
Sound area to Portland. From its origination point in Portland, the Oregon Line
extends south and serves Partnership terminals located in Albany and Eugene,
Oregon.

The SAN DIEGO LINE is a 135-mile pipeline serving major population areas in
Orange County (immediately south of Los Angeles) and San Diego. Approximately 20
shippers transport products on this line, supplied by the same refineries and
terminals that supply the West Line. The San Diego Line originates from the
pumping station at Norwalk, California on the West Line and extends south to
serve Partnership terminals in the cities of Orange and San Diego.

DESCRIPTION OF THE TRUCK LOADING TERMINALS
The Partnership's operations include 14 truck loading terminals with an
aggregate usable tankage capacity of approximately 8.2 million barrels.
Terminals are located at destination points on each of the lines as well as at
certain intermediate points along each line where deliveries are made. These
terminals furnish short-term product storage, truck loading and ancillary
services, such as vapor recovery, additive injection, oxygenate blending, and
quality control. The truck loading capacity of the terminals ranges from two to
12 trucks at a time. Between 128 million and 130 million barrels of products
were delivered to commercial customers at such terminals during each of the past
three years, resulting in Partnership storage and terminaling revenues of $34.3
million, $33.8 million and $33.5 million during the years 1995, 1994 and 1993,
respectively.

Capacity of the Partnership's terminaling facilities varies throughout the
Pipeline System. The Partnership does not own terminal facilities at all
pipeline delivery locations. At certain locations, product deliveries are made
to facilities owned by shippers or independent terminal operators.

Truck loading and other terminal services are provided by the Partnership as an
additional service, and a separate fee (in addition to transportation tariffs)
is charged. Rates charged for terminaling services are not economically
regulated by the Federal Energy Regulatory Commission ("FERC") or any state
agency.

MAINTENANCE
To prolong the useful life of the Pipeline System and terminals, routine
preventive maintenance is performed. Such maintenance includes cathodic
protection to prevent corrosion, pipeline reconditioning and periodic internal
pipeline inspections. In addition, the Pipeline System's rights-of-way are
patrolled at regular intervals to identify excavation or other activities by
third parties which, if left unchecked, could result in damage to the pipeline.

A computer-based pipeline monitoring system ("SCADA") continuously monitors
pipeline operating conditions, including pressures, temperatures, pumping rates
and equipment configuration, on a real-time basis. In addition to providing
remote monitoring and control of certain operating equipment, SCADA
automatically alerts operating personnel, who are on duty on a 24-hour basis, if
changes in flow conditions require attention. Use of this information by
operating personnel allows them to respond quickly to system problems.

                                       5
<PAGE>
 
COMPETITION AND BUSINESS CONSIDERATIONS
The Partnership conducts its operations without the benefit of exclusive
franchises from government entities. In addition, the Partnership provides
common carrier transportation services through the Pipeline System at posted
tariffs, and, in virtually all cases, without long-term contracts for
transportation service with its customers. Demand for the Partnership's
transportation services is principally a function of product consumption and
competition in markets served by the Pipeline System. Product consumption is
primarily a function of prevailing economic and demographic conditions, and, to
a lesser extent, product prices paid by end users, while the Partnership's
market share within competitive markets is primarily a function of the
availability and attractiveness (in terms of cost and service) of alternate
modes of transportation, alternate product sources, service capabilities and
pricing.

Utilization of and demand for the Partnership's terminaling services varies
widely throughout the Pipeline System. Certain of the major petroleum companies
as well as independent terminal operators are presently in direct competition
with the Partnership at several terminal locations. At those locations, market
share is primarily a function of pricing, service capabilities and available
tankage. The Partnership expects to introduce new terminal services pricing
structures in 1996 to improve its ability to compete for such services.

Because pipelines are generally the lowest cost method for intermediate and
long-haul overland product movement, the Pipeline System's most significant
competitors are proprietary pipelines owned and operated by major oil companies
in the areas where the Pipeline System delivers products, refineries within the
Partnership's market areas and trucks. The Partnership believes that high
capital costs, tariff regulation and environmental permitting considerations
make it unlikely that a competing pipeline system comparable in size and scope
to the Pipeline System will be built in the foreseeable future, provided that
the Pipeline System has available capacity to satisfy demand and its tariffs
remain at reasonable levels. However, the possibility of pipelines being
constructed to serve specific markets is a continuing competitive factor. Trucks
may competitively deliver products in certain markets and, in 1995, the
Partnership experienced minor but notable reductions in product volumes
delivered to certain shorter-haul destinations, primarily Orange and Colton,
California, due to increased utilization of trucking by major oil companies.
Management can not predict with certainty whether this trend towards increased
short-haul trucking will continue in the future.

For more than ten years, an individual entrepreneur has attempted to gain
investor support for a petroleum products refinery in the Phoenix area. Because
of the perceived risk of this venture, and the large investment required, this
project has not been undertaken. In September 1994, The Williams Companies, Inc.
("Williams") announced that a subsidiary company had been given approval to
conduct detailed engineering and marketing analyses as part of a project that
could lead to the construction and operation of a 50,000 barrel-per-day oil
refinery near Phoenix, Arizona. The Williams proposal apparently contemplated
utilizing the refinery site and permits held by the entrepreneur. However, in
January 1995, Williams announced that it was canceling its participation in the
project, citing, among other things, higher than anticipated construction costs
and its inability to identify an experienced refiner-partner. Williams stated
that it would not reconsider its decision at a future date. Subsequently, the
entrepreneur has stated that other parties are interested in pursuing the
refinery project, but none have publicly announced such interest. Should such a
refinery be constructed, the Partnership's throughput on the South Line would be
negatively affected. It is possible that a portion of any revenue reduction
could be recovered through rate increases.

                                       6

<PAGE>
 
REGULATION

Tariff Regulation
Substantially all of the Partnership's pipeline operations are common carrier
operations that are subject to federal or state rate regulation.

The Partnership's interstate common carrier pipeline operations are subject to
rate regulation by the Federal Energy Regulatory Commission ("FERC") under the
Interstate Commerce Act which requires, among other things, that petroleum
product pipeline rates be "just and reasonable" and nondiscriminatory. In
general, the FERC has evaluated the justness and reasonableness of petroleum
product pipeline rates under a "cost of service" approach that permits a
pipeline to establish its tariffs, based on projected volumes, at levels
sufficient to recover its cost of service. Under this approach, a pipeline's
cost of service includes the following components: (a) operating expenses, (b)
depreciation and amortization, (c) federal and state income taxes and (d) an
overall allowed rate of return on the pipeline's "rate base." Generally, rate
base is a measure of the investment in, and value of, the common carrier assets
of a petroleum products pipeline.

Under a "trended original cost" ("TOC") methodology adopted by the FERC in 1985
for establishing a liquid petroleum pipeline's tariffs, after a starting rate
base has been determined, a pipeline's rate base is to be (i) increased by an
amount equal to the equity portion of the rate base multiplied or "trended" by
an inflation factor, (ii) increased by property additions at cost and (iii)
decreased by property retirements, depreciation and amortization of the rate
base write-ups reflecting inflation. A petroleum product pipeline's capital
structure (i.e., the relative proportions of debt and equity in its total
capitalization) affects (i) its starting rate base, (ii) the proportion of the
rate base that is trended to reflect inflation under the TOC methodology and
(iii) other factors that bear on the determination of just and reasonable
pipeline rates.

The TOC methodology is subject to clarification and reconsideration in
individual cases and leaves many issues, including the appropriate rate of
return, for determination on a case-by-case basis. Alternatively, pipelines that
can demonstrate that they operate in competitive markets may be allowed to
establish tariffs under a less stringent form of "light-handed" rate regulation.
Pipelines may also be allowed to increase, or required to decrease, their
interstate rates in accordance with an inflation index (the Producer Price Index
for Finished Goods minus one percent) published annually by the FERC.

Intrastate common carrier operations of the Pipeline System in California are
subject to regulation by the California Public Utilities Commission ("CPUC")
under a "depreciated book plant" methodology, which is based on an original cost
measure of investment. Intrastate tariffs filed by the Partnership with the CPUC
have been established on the basis of revenues, expenses and investments
allocated as applicable to the intrastate portion of the Partnership's business.
In this regard, the operations of the San Diego Line are wholly intrastate and
the operations of certain portions of the North and South Lines are intrastate.

Tariff rates with respect to intrastate pipeline service in California are
subject to challenge by complaint by interested parties or by independent action
of the CPUC. A variety of factors, including changes in capitalization, can
affect the rates of return permitted by the CPUC and certain other issues
similar to those which have arisen with respect to the Partnership's FERC
regulated rates could also arise with respect to the Partnership's intrastate
rates.

                                       7

<PAGE>
 
(See also Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations - Other Matters - Rate Regulation.)

Environmental and Safety Regulation

The Partnership's operations are subject to federal, state and local laws and
regulations relating to protection of the environment, including laws and
regulations relating to water, air, solid waste and hazardous substances. The
discharge of, or contamination of property by, hazardous materials may arise
from transportation and storage of such materials in the Pipeline System. The
normal operations of the Pipeline System may expose the Partnership to claims
and potential liability for injuries to employees, other persons, property and
the environment. (See also Item 3. Legal Proceedings and Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations - Other
Matters - Environmental Matters.) The Partnership's operations are also subject
to operating and safety regulation by the Department of Transportation and
various other federal, state and local agencies.

EMPLOYEES
The Partnership does not have any employees, officers or directors. The General
Partner is responsible for management and operation of the Partnership. As of
December 31, 1995, regular, full-time employees of the General Partner numbered
437.


ITEM 3. LEGAL PROCEEDINGS.

EAST LINE CIVIL LITIGATION AND FERC PROCEEDING
In August 1992, two East Line refiners, Navajo Refining Company ("Navajo") and
El Paso Refinery, L.P. ("El Paso"), filed separate, though similar, civil
lawsuits (the "East Line Civil Litigation") against the Partnership arising from
the Partnership's alleged failure to provide additional pipeline capacity to
Phoenix and Tucson, Arizona from El Paso, Texas. The Navajo action also sought
an injunction to prohibit the Partnership from reversing the direction of flow
(from westbound to eastbound) of its six-inch diameter pipeline between Phoenix
and Tucson. In addition, El Paso filed a protest/complaint with the FERC in
September 1992 seeking to block the reversal of the six-inch pipeline and
challenging the Partnership's proration policy as well as the Partnership's
existing East Line rates (the "FERC Proceeding").

EAST LINE CIVIL LITIGATION
--------------------------
The civil actions brought by Navajo and El Paso (El Paso Refining, Inc., and El
Paso Refinery, L.P. v. Santa Fe Pacific Pipelines, Inc. and Santa Fe Pacific
Pipeline Partners, L.P., No. 92-9144, County Court No. 5, El Paso County, filed
August 1992) were filed in New Mexico and Texas, respectively, seeking actual,
punitive and consequential damages arising from the Partnership's alleged
failure to provide additional pipeline capacity to Phoenix and Tucson from El
Paso. Generally, the lawsuits allege that the refiners proceeded with
significant refinery expansions under the belief that the Partnership would
provide additional pipeline capacity to transport their product into Arizona,
and that they were damaged by their inability to ship additional volumes into
that highly competitive market. This belief of Navajo and El Paso was
purportedly based on alleged oral representations made by General Partner
personnel and from language contained in a January 1989 settlement agreement
with Navajo, relating to a 1985 FERC rate case.

On July 28, 1993, the Partnership reached a settlement with Navajo whereby
Navajo agreed to dismiss its pending civil litigation in New Mexico and to
withdraw any challenge to the direction of flow of the six-inch pipeline,
including any such challenge in the FERC proceeding. The Partnership agreed to

                                       8

<PAGE>
 
make certain cash payments to Navajo over three years and to undertake and
complete an additional pipeline capacity expansion between El Paso and Phoenix
if certain events related to volume levels and proration of pipeline capacity
should occur within five years of the date of the agreement.

El Paso's August 1992 civil action, as amended, claims unspecified actual
damages, which appear to include the $190 million cost of its refinery
expansion, plus punitive and consequential damages. In addition, on October 4,
1995, El Paso's general partner, El Paso Refining, Inc. ("EPRI"), filed a Second
Amended Petition seeking unspecified damages arising from alleged unfulfilled
representations of Partnership management with respect to future East Line
capacity, alleging that such representations had been relied upon in negotiating
the terms by which EPRI exchanged its refinery assets for ownership interests in
El Paso in 1989.

In October 1992, El Paso filed a petition for reorganization under Chapter 11 of
the federal bankruptcy laws and halted refinery operations. In November 1993,
the El Paso bankruptcy was converted from a Chapter 11 to a Chapter 7
proceeding. During 1994, the bankruptcy trustee for El Paso retained legal
counsel for purposes of pursuing this litigation. Initial rounds of written
discovery and witness depositions were conducted by both parties in late-1994
and in 1995, and discovery will continue in 1996.

To date, there have been no hearings before the court and there is no pre-trial
schedule. Management anticipates that this matter will not come to trial prior
to mid-1997. The Partnership believes that the allegations of El Paso and EPRI
are without merit and intends to vigorously defend itself in this action.

FERC PROCEEDING
---------------
At various points following El Paso's September 1992 filing, other customers of
the Partnership, including Chevron U.S.A. Products Company ("Chevron"), Navajo,
ARCO Products Company ("ARCO"), Texaco Refining and Marketing Inc. ("Texaco"),
Refinery Holding Company, L.P. (a partnership formed by El Paso's long-term
secured creditors that purchased El Paso's refinery in May 1993), Mobil Oil
Corporation and Tosco Corporation, have filed separate complaints challenging,
and/or motions to intervene in proceedings initiated by others challenging, the
Partnership's rates on its East and West Lines and, in certain cases, also
claiming that a gathering enhancement charge at the Partnership's Watson,
California pump station is in violation of the Interstate Commerce Act. In
subsequent procedural rulings, the FERC has consolidated these challenges and
ruled that they must proceed as a complaint proceeding, with the burden of proof
being placed on the complaining parties, who must show that the Partnership's
rates and practices at issue violate the requirements of the Interstate Commerce
Act.

In December 1995, Texaco filed a new complaint concerning charges associated
with the use of the Partnership's Watson, California gathering enhancement
facilities and of certain lines upstream of its Watson station origin point, and
ARCO filed a similar complaint on January 16, 1996. Texaco and ARCO have asked
that these complaints not be consolidated with the other proceedings described
above. The Partnership has denied the allegations in these complaints.

In June 1994, the complainants filed their cases-in-chief with the FERC, seeking
reparations for shipments between 1990 and 1993 aggregating in the range of $15
million to $20 million, as well as tariff rate reductions of between 40% and 50%
for future shipments. In August 1994, the FERC Staff submitted its case-in-chief
in the FERC proceeding, employing rate-making methodologies similar in several
respects to those presented by the complainants. In subsequent filings, the
complainants revised their requested relief to seek reparations for shipments
between 1990 and 1994 aggregating

                                       9

<PAGE>
 
approximately $35 million, as well as rate reductions of between 30% and 40% for
shipments in 1995 and thereafter.

Both the FERC Staff and several of the complainants argued, among other things,
against the Partnership's entitlement to an income tax allowance in its cost of
service. They also utilized the Partnership's capital structure at the time of
its formation in December 1988, or a hypothetical capital structure, for the
purpose of establishing the Partnership's 1985 starting rate base under FERC
Opinion 154-B. In addition, the FERC Staff and the complainants would generally
exclude most or all of the Partnership's civil and regulatory litigation expense
from its cost of service calculations. Each of these positions is adverse to the
Partnership's position regarding its existing rate structure.

On June 15, 1995, the FERC issued a decision in an unrelated rate proceeding
involving Lakehead Pipe Line Company, Limited Partnership ("Lakehead"), ruling
that Lakehead, which is also a publicly traded partnership engaged in oil
pipeline transportation, may not include an income tax allowance in its cost of
service with respect to partnership income that is attributable to limited
partnership interests held by individuals. In July 1995, Lakehead requested
rehearing of the decision by the FERC, and that request is currently pending.
Should this ruling be upheld and applied in the Partnership's rate proceeding,
the Partnership believes it would currently allow the Partnership to include a
substantial portion of the Partnership's income tax allowance in its cost of
service, rather than the full entitlement that was reflected in the
Partnership's case-in-chief and subsequent testimony in its FERC proceeding.
Management intends to vigorously defend its entitlement to a full income tax
allowance in its cost of service.

Successive rounds of testimony have been filed by the respective parties,
including the Partnership, regarding the above summarized issues and other
matters relevant to the appropriateness of the Partnership's tariffs and rates.
Among other things, certain of the parties submitted revised cases based on the
Partnership's 1994 costs and revenues. The Partnership's surrebuttal
presentation responded to those cases, defending the Partnership's current rates
based on 1994 data, with certain normalizing adjustments including a significant
adjustment to reflect an extensive pipe reconditioning program that was begun in
1994. The present procedural schedule calls for hearings before the FERC
Administrative Law Judge to commence in April 1996, with an initial decision not
expected before late 1996 or early 1997.

The Energy Policy Act of 1992 ("EPACT") established as "just and reasonable"
existing oil pipeline rates that were in effect without challenge for 365 days
prior to the bill's enactment in October 1992, with an exception being allowed
for parties, such as Navajo, that were prohibited from filing challenges during
that period due to the terms of settlement agreements. In October 1993, with
respect to Chevron's complaint, the FERC ruled that the Partnership's West Line
rates are deemed "just and reasonable" under EPACT (i.e., are "grandfathered")
and may only be challenged upon a showing of a substantial change in the
economic circumstances which were a basis for the rate ("changed
circumstances"). In December 1994, ARCO, Texaco and Chevron filed testimony in
which they sought to demonstrate the required "changed circumstances" in order
to challenge the Partnership's West Line rates, citing such factors as increased
West Line volumes. On April 20, 1995, the United States Court of Appeals for the
District of Columbia Circuit dismissed petitions for review of the FERC's
grandfathering rulings that had been filed by ARCO and Texaco, on the ground
that those rulings are not yet final orders and, therefore, are not yet subject
to judicial review.

The Partnership believes that its rates and practices are lawful under FERC
precedent and will continue its vigorous defense of that position. However,
because of the complexity of the issues involved and the

                                      10

<PAGE>
 
nature of FERC rate-making methodology, which is subject to interpretation and
leaves certain issues for determination on a case-by-case basis, it is possible
that the rates at issue in the FERC proceeding will not ultimately be upheld. If
the FERC were to reach adverse decisions on the issues in the proceeding which
result in significant reparations being paid and a significant reduction in the
Partnership's current tariffs, such adverse outcome could have a material
adverse effect on the Partnership's results of operations, financial condition
and ability to maintain its quarterly cash distribution at the current level.

ENVIRONMENTAL MATTERS

The Partnership is subject to environmental cleanup and enforcement actions from
time to time. In particular, the federal Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA" or "Superfund" law) generally imposes
joint and several liability for cleanup and enforcement costs, without regard to
fault or the legality of the original conduct, on current or predecessor owners
and operators of a site. Since August 1991, the Partnership, along with several
other respondents, has been involved in one cleanup ordered by the United States
Environmental Protection Agency ("EPA") related to ground water contamination in
the vicinity of the Partnership's storage facilities and truck loading terminal
at Sparks, Nevada. In addition, the Partnership is presently involved in eleven
ground water hydrocarbon remediation efforts under administrative orders issued
by the California Regional Water Quality Control Board and two other state
agencies.

With respect to the Sparks remediation, the EPA approved the respondents'
remediation plan in September 1992. In January 1995, remediation system design,
engineering and permitting activities began, and the remediation system began
operations in September 1995. During 1995, a Joint Defense, Mediation and
Arbitration Agreement Among Defendants was entered into by eight participants,
which establishes remediation cost allocation percentages among the
participants.

The investigation and remediation at and adjacent to the Partnership's storage
facilities and truck loading terminal in Sparks, Nevada was also the subject of
a lawsuit brought in January 1991 entitled Nevada Division of Environmental
Protection v. Santa Fe Pacific Pipelines, Inc., Southern Pacific Transportation
Company, Shell Oil Company, Time Oil Company, Berry-Hinckley Terminal, Inc.,
Chevron U.S.A., Inc., Texaco Refining and Marketing, Inc., Air BP, a division of
BP Oil, Unocal Corporation, and Golden Gate Petroleum Company, Case No. CV91-
546, in the Second Judicial District Court of the State of Nevada in and for the
County of Washoe (the "Court"). This lawsuit was subsequently joined by the
County of Washoe Health District (the "County") and the City of Sparks, Nevada
(the "City"). These various parties sought remediation of the contamination at
and adjacent to the Sparks terminal as well as unspecified, but potentially
significant, damages and statutory penalties. In addition, the Partnership was
named as one of the defendants in a number of other lawsuits brought by property
owners seeking unspecified, but potentially substantial, damages for, among
other things, alleged property value diminishment attributable to soil or
groundwater contamination arising from the defendants' operations. In October
1994, a ruling by the Court consolidated all of the outstanding cases against
the respondent group for trial purposes. In February 1995, the Court established
a procedural schedule which called for the trial to commence in January 1996.

On July 27, 1995, the Partnership and seven other defendants (the "defendant
group") entered into a Stipulation and Consent Decree with the State of Nevada,
Division of Environmental Protection (the "State"), which was subsequently
approved by the Court, settling all claims made by the State in the above-
referenced lawsuit, and under which the defendant group agreed to pay the State
a total principal amount of $10 million in eleven equal payments over ten years.
The defendant group has also entered

                                      11

<PAGE>
 
into a settlement agreement with the County whereby the defendant group will pay
the County the sum of $150,000 in settlement of all of the claims brought by the
County in its lawsuit.

On September 22, 1995, the defendant group reached a settlement agreement with
the City, subsequently approved by the Sparks City Council, whereby, among other
things, the defendant group paid the City the sum of $5.6 million, including
attorney fees, in December 1995 and agreed to purchase an annuity that will fund
four annual payments to the City of $1.625 million (aggregating $6.5 million) in
the years 2002 through 2005 in settlement of all of the City's claims related to
the Sparks environmental site. In addition, the defendant group agreed to use
its best efforts to install an enhanced remediation system to accelerate the
cleanup of the environmental site and agreed to donate certain water rights to
the City if and as needed. In addition, during the months of September through
December 1995, the defendant group reached agreements in principle and, in some
cases, final agreements, to settle the claims of the seven property owners who
had filed lawsuits seeking damages alleged to be attributable to the
environmental contamination. These settlement agreements involve various terms,
including cash payments, environmental and property value diminishment
indemnifications, loan guarantees and the purchase of certain properties.

The Partnership's share of the settlements with the City and the property owners
will be determined in an arbitration proceeding expected to be held during 1996.
The Partnership's estimated share of the costs of all of the settlement
agreements associated with the Sparks litigation was included in its 1995
provisions for environmental costs aggregating $24 million.

During the quarter ended December 31, 1995, the Partnership entered into a
stipulation with the California Department of Fish and Game, the County of San
Diego and the United States Department of Fish and Wildlife to settle all of the
agencies' claims arising from a December 1994 product release at the
Partnership's facilities in Mission Valley, California. In accordance with this
stipulation, in January 1996, the Partnership paid $30,000 in fines and
approximately $160,000 in area restorations, and reimbursed approximately
$70,000 in oversight costs of the three governmental agencies.

As of December 31, 1995, the Partnership is in the process of negotiating with
the California Department of Fish and Game to settle the Department's claims
arising from three separate product releases from Partnership facilities.
Management does not believe that the total cost of any fines or other amounts
payable associated with these product releases, either individually or in the
aggregate, will be material to the Partnership's results of operations or
financial condition, but such amounts may be in excess of $100,000 per
occurrence.

The Partnership and the General Partner have initiated two legal actions against
a total of 34 past and present insurance carriers (SFPP, L.P., Santa Fe Pacific
Pipeline Partners, L.P. and Santa Fe Pacific Pipelines, Inc. vs. Agricultural
Insurance Company, et al. and SFPP, L.P., Santa Fe Pacific Pipeline Partners,
                   ------                                                    
L.P. and Santa Fe Pacific Pipelines, Inc. vs. Associated International Insurance
Company, et al., Superior Court of the State of California for the County of San
         ------                                                                 
Mateo, Docket Nos. 395109 and 395121, respectively, filed January 1996). These
actions seek a judicial determination that the insurance policies issued by the
defendant insurers provide coverage to the Partnership and General Partner for
certain costs, liabilities and settlements relating to approximately 25
environmental sites, including Sparks, Nevada. To date, the costs at issue in
these actions have been borne by the Partnership and General Partner. Although
there is no assurance that the Partnership will be successful in these actions,
management intends to vigorously pursue these claims. The defendant insurers are
still in the process of filing initial responsive pleadings and affirmative
defenses, and discovery has not yet begun.

                                       12
<PAGE>
 
OTHER
The Partnership and Southern Pacific Transportation Company ("SPTC") are engaged
in a judicial proceeding to determine the extent, if any, to which the rent
payable by the Partnership for the use of pipeline easements on rights-of-way
held by SPTC should be adjusted pursuant to existing contractual arrangements
(Southern Pacific Transportation Company vs. Santa Fe Pacific Corporation, SFP
Properties, Inc., Santa Fe Pacific Pipelines, Inc., SFPP, L.P., et al., Superior
                                                                -- ---          
Court of the State of California for the County of San Francisco, filed August
31, 1994). Under an agreement entered into among the parties in 1994, the amount
of annual rent for such easements for the first year of the ten-year period that
began January 1, 1994 is to be based on the fair market value of the easements,
with the rent for subsequent years to be subject to annual inflation
adjustments. SPTC has asserted in this proceeding that the amount of the
easement rent should be increased from the current level of approximately $3.7
million per year to $18.5 million per year, subject to annual inflation
adjustments. The Partnership does not believe that the evidence provided by SPTC
to date supports an annual rent in excess of the amounts accrued; however, it is
not presently possible to predict with certainty the outcome of this matter.

The Partnership is also party to a number of other legal actions arising in the
ordinary course of business. While the final outcome of these other matters
cannot be predicted with certainty, it is the opinion of management that none of
these other legal actions, either individually or in the aggregate, when finally
resolved, will have a material adverse effect on the annual results of
operations, financial condition or liquidity of the Partnership.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of 1995.

                                      13
<PAGE>

                                    PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Information as to the principal markets on which the Registrant's common units
are traded, the high and low sales prices of such units and distributions
declared on such units for the two years ended December 31, 1995, and the
approximate number of record holders of such units is set forth in Note 8 to the
Partnership's consolidated financial statements on page F-15 of this Report.


ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected consolidated financial data for the
Partnership:
<TABLE>
<CAPTION>

                                                                  Year ended December 31,
                                        ------------------------------------------------------------------------
(in thousands, except per unit data)         1995           1994          1993           1992           1991
                                        --------------  ------------   -----------   -----------     -----------

<S>                                        <C>           <C>           <C>           <C>             <C>
INCOME STATEMENT DATA:
Total revenues.........................    $   233,677   $   228,066   $   219,471   $    205,025    $   193,438
Operating expenses (excluding
 provisions and depreciation &
 amortization).........................        103,196        97,199        95,178         85,340         80,775
Provisions for environmental
 and litigation costs..................         34,000            --        27,000         10,000             --
Depreciation & amortization............         20,500        19,820        18,971         18,327         16,834
Operating income.......................         75,981       111,047        78,322         91,358         95,829
Interest expense.......................         37,247        37,570        37,086         36,937         36,924
Income before cumulative
 effect of accounting change (a).......         40,367        76,885        41,616         54,118         60,604
Cumulative effect of accounting
 change................................            --            --            --         (16,407)           --
Net income.............................    $    40,367   $    76,885   $    41,616   $     37,711    $    60,604

PER UNIT DATA:
Income before cumulative
  effect of accounting change..........    $      2.04   $      3.93   $      2.13   $       2.77    $      3.10
Cumulative effect of accounting change.             --            --            --          (0.84)            --
Net income.............................           2.04          3.93          2.13           1.93           3.10
Cash distributions paid................           2.95          2.80          2.80           2.80           2.70
Cash distributions declared............           3.00          2.80          2.80           2.80           2.75

CAPITAL EXPENDITURES...................    $    31,431   $    17,913   $    21,084   $     30,931    $    27,715

BALANCE SHEET DATA (AT YEAR END):
Properties, plant and equipment, net...    $   623,318   $   613,039   $   616,610   $    618,098    $   605,461
Total assets...........................        720,854       714,772       696,980        684,852        677,480
Long-term debt.........................        355,000       355,000       355,000        355,000        355,000
Total partners' capital................        270,065       287,961       265,851        279,010        296,075
</TABLE>

  (a) Effective January 1, 1992, the Partnership adopted new accounting
  standards for postretirement and postemployment benefits (Statements of
  Financial Accounting Standards Nos. 106 and 112).

                                      14


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

RESULTS OF OPERATIONS

1995 COMPARED WITH 1994
-----------------------
The Partnership reported 1995 net income of $40.4 million, or $2.04 per unit,
compared to net income of $76.9 million, or $3.93 per unit, in 1994, with the
variance being primarily attributable to special items recorded in both years.
Results of operations included provisions for environmental and litigation costs
aggregating $34.0 million in 1995 and a $3.1 million credit resulting from
changes in eligibility requirements for postretirement medical benefits in 1994.
Excluding the 1995 provisions and the 1994 credit, adjusted net income was $73.3
million, or $3.70 per unit, in 1995, compared to $73.9 million, or $3.78 per
unit, in 1994.

Total 1995 revenues of $233.7 million were 2.5% above 1994 levels. Trunk
revenues of $183.3 million were $3.9 million higher than in 1994 primarily due
to growth in total volumes transported. Commercial volumes were about 1.5%
higher, and military volumes 5% lower, than in 1994, and the average length of
haul was slightly higher. Deliveries to most of the markets served by the
Partnership increased during 1995, although Southern California deliveries were
lower as a result of competition from short-haul trucking to Los Angeles area
terminals. The reduction in military volumes is largely attributable to the
closure of Castle Air Force Base, in Central California. Storage and terminaling
revenues were 1% higher than in 1994. Other revenues increased $1.3 million
primarily due to new detergent additive services.

Total operating expenses of $157.7 million were $40.7 million higher in 1995
than in 1994, due largely to the 1995 provisions for environmental and
litigation costs aggregating $34.0 million. Excluding the 1995 provisions,
operating expenses would have been $6.7 million, or 6%, higher than in 1994,
with higher general and administrative expenses ($4.7 million), power costs
($1.0 million), depreciation and amortization ($0.7 million) and field operating
expenses ($0.5 million), partially offset by lower facilities costs ($0.3
million), accounting for that increase. General and administrative expenses were
higher due to outside legal and consulting costs, primarily related to the FERC
proceeding and litigation associated with the Sparks, Nevada environmental site,
partially offset by lower employee health care and postretirement benefit costs.
Power costs increased as the result of increased volumes and greater use of drag
reducing agent to increase pipeline capacity on selected routes. The increase in
depreciation and amortization resulted from the Partnership's expanding capital
asset base, particularly short-lived software costs. The increase in field
operating expenses is largely attributable to higher repairs and maintenance,
including pipeline reconditioning. The decrease in facilities costs is largely
attributable to lower property tax assessments and insurance premiums, partially
offset by higher right-of-way rental costs. Excluding the 1995 provisions,
environmental remediation and East Line litigation costs recorded as operating
expense aggregated $7.0 million in 1995 and $3.8 million in 1994.

Other income, net decreased $2.1 million compared to 1994, primarily due to the
$3.1 million postretirement benefit credit recorded in 1994, partially offset by
higher interest income, which resulted from higher interest rates and cash
balances.

1994 COMPARED WITH 1993
-----------------------
The Partnership reported 1994 net income of $76.9 million, or $3.93 per unit,
compared to net income of $41.6 million, or $2.13 per unit, in 1993. Results of
operations included the previously mentioned $3.1 million credit in 1994
resulting from changes in eligibility requirements for postretirement medical
benefits and, in 1993, provisions for environmental and litigation costs
aggregating $27.0 million.

                                      15

<PAGE>
 
Excluding the 1994 credit and the 1993 provisions, adjusted net income of $73.9
million, or $3.78 per unit, in 1994 was 8.5% higher than adjusted net income of
$68.1 million, or $3.48 per unit, in 1993.

Total 1994 revenues of $228.1 million were 4% above 1993 levels. Trunk revenues
of $179.3 million were $7.5 million higher than in 1993 primarily due to a 5%
growth in total volumes transported. Commercial and military volumes were 5% and
9% higher, respectively, than in 1993, and the average length of haul was even.
Despite the higher pipeline volumes, storage and terminaling revenues were even
with 1993. Other revenues increased $1.1 million due to higher tank rentals and
new terminal services.

Total operating expenses of $117.0 million were $24.1 million lower than in
1993, due largely to the previously mentioned 1993 provisions for environmental
and litigation costs aggregating $27.0 million. Excluding the 1993 provisions,
operating expenses would have been $2.9 million, or 2.5%, higher than in 1993,
with higher power costs ($1.8 million), facilities costs ($1.7 million),
depreciation and amortization ($0.8 million) and general and administrative
expenses ($0.4 million), partially offset by lower field operating expenses
($1.8 million), accounting for that increase. The increase in power costs
resulted from higher volumes, increased power rates and greater use of drag
reducing agent to increase pipeline capacity on selected routes. Facilities
costs increased as a result of higher right-of-way rentals and property taxes.
General and administrative expense increased less than 2% as the net result of
higher legal expense and reduced overhead recoveries on recollectible projects
for customers or governmental agencies, largely offset by lower East Line
litigation, employee incentive compensation and information services costs. The
decrease in field operating expenses is largely attributable to 1993 pipeline
inspection costs associated with the potential conversion of one of the
Partnership's pipelines to crude oil service and generally lower major
maintenance expense. Excluding the 1993 provisions, environmental remediation
and East Line litigation costs recorded as operating expense aggregated $3.8
million and $6.2 million in 1994 and 1993, respectively.

Other income, net increased significantly in 1994 as the result of a $3.1
million gain resulting from changes in eligibility requirements for
postretirement medical benefits and higher interest income.


FINANCIAL CONDITION - LIQUIDITY AND CAPITAL RESOURCES
For the year ended December 31, 1995, cash flow from operations totaled $83.7
million, compared to $90.0 million in 1994. Working capital cash requirements
increased $2.8 million in 1995 due to timing differences in collections of trade
and nontrade accounts receivable and payment of accrued obligations. Significant
uses of cash in 1995 included cash distributions of $60.0 million and capital
expenditures of $31.4 million, resulting in a net decrease in cash and cash
equivalents of $7.7 million for the year. Total cash and cash equivalents of
$41.2 million at December 31, 1995 included $15.4 million for the fourth quarter
1995 cash distribution, which was paid in February 1996.

Since the useful lives of the pipeline system and terminal properties are
generally long and technological change is limited, replacement of facilities is
relatively infrequent. The principal need for capital, therefore, has been in
connection with capacity expansions, service enhancements, compliance with
increasingly stringent environmental and safety regulations and installation of
Supervisory Control and Data Acquisition ("SCADA") equipment and related
operations systems software.

For the year ended December 31, 1995, Partnership capital expenditures
aggregated $31.4 million. Capital expenditures for income enhancement projects,
including capacity expansions, service enhancements and system upgrades,
aggregated approximately $12 million in 1995. Capital

                                      16


<PAGE>
 
expenditures for environmental and safety projects included additions and
modifications to storage tanks and vapor recovery systems to comply with more
stringent regulations, oily water handling facilities and fire protection
improvements. Such expenditures aggregated approximately $7 million in 1995 and
are expected to increase over time in response to increasingly rigorous
environmental and safety standards.

In January 1996, the Partnership completed the purchase, from Kinley Pipelines
of California, of a 35-mile, 6-inch diameter pipeline that serves Lemoore Naval
Air Station from the Partnership's Fresno, California terminal, for
approximately $6 million. In addition to that acquisition, the planned 1996
capital program aggregates approximately $22 million, the majority of which will
be invested in sustaining projects. The Partnership presently anticipates that
ongoing capital expenditures will average approximately $30 million per year
over the next five years. This amount could increase or decrease as the result
of changing regulatory requirements or business opportunities associated with
pipeline and facility expansions and acquisitions.

During 1995, the Partnership continued to investigate the feasibility of
providing pipeline service from the San Francisco Bay area to Colton, in
Southern California, by expanding the existing capacity on its North Line and
building a new pipeline between Fresno and Colton. The level of shipper
throughput commitments obtained to date is not sufficient to proceed and places
the viability of this project in doubt. Management anticipates that a decision
on the future of this project will be made during 1996.

The Partnership expects that it will generally finance its ongoing capital
program with internally generated funds; however, the Partnership may use
borrowed funds or proceeds from additional equity offerings to finance a portion
of significant capital expenditures. Future capital expenditures will continue
to depend on numerous factors, some of which are beyond the Partnership's
control, including demand for refined petroleum products in the pipeline
system's market areas, changes in product supply patterns, governmental
regulations and the availability of sufficient funds from operations to fund
such expenditures.

Due to the capital-intensive nature of the Partnership's business, inflation
generally causes an understatement of operating expenses because depreciation is
based on the historical costs of assets rather than their replacement costs.

Long-term debt aggregated $355 million at December 31, 1995 and consisted of
$327 million of First Mortgage Notes (the "Notes") and a $28 million borrowing
under the Partnership's bank term credit facility. The Partnership intends to
refinance some or all of the Notes as the various series become payable. To
facilitate such refinancing and provide for additional financial flexibility,
the Partnership presently has available the multi-year term credit facility,
with a $60 million aggregate limit, and a $20 million working capital facility
with three banks. The term facility may continue to be used for refinancing a
portion of the Notes and for capital projects, while the working capital
facility is available for general short-term borrowing purposes.

                                      17


<PAGE>
 
OTHER MATTERS

RATE REGULATION
The Partnership's interstate common carrier pipeline operations are subject to
rate regulation by the Federal Energy Regulatory Commission ("FERC"). Intrastate
common carrier operations in California are subject to regulation by the
California Public Utilities Commission ("CPUC"). In 1995, rates subject to FERC
and CPUC regulation accounted for approximately 55% and 45% of total
transportation revenues, respectively.

In 1985, the FERC adopted a cost-based methodology for establishing allowable
rates for liquid petroleum pipelines; however, this methodology continues to be
subject to clarification in individual cases and leaves many issues for
determination on a case-by-case basis. Effective January 1995, the FERC
established a new rate-making methodology that allows oil pipelines to adjust
their transportation rates as long as those rates do not exceed prescribed
ceiling levels determined by applying an index equal to annual changes in the
Producer Price Index for Finished Goods, minus one percent. Under this
methodology, pipelines may apply for cost of service-based rates in those cases
where the carrier can demonstrate that a "substantial divergence" exists between
the rates that would be allowed under cost-based rate-making and the rates
produced by indexation. In addition, carriers may establish market-based rates
for those markets in which it can be demonstrated that they do not have
significant market power. The access to cost-based and market-based rates is
significant because the Partnership believes the index selected by the FERC does
not adequately reflect historical cost of service increases and, accordingly,
the Partnership may need to pursue cost-based or selective market-based rate
adjustments in future rate filings. Interstate rate indexing had a minimal
impact on Partnership revenues in 1995 and management does not expect that
indexing will have a significant impact on trunk revenues in 1996.

EAST LINE CIVIL LITIGATION AND FERC PROCEEDING
Certain of the Partnership's shippers have filed civil suits and initiated
Federal Energy Regulatory Commission ("FERC") complaint proceedings alleging,
among other things, that the shippers were damaged by the Partnership's failure
to fulfill alleged promises to expand the East Line's capacity between El Paso,
Texas and Phoenix, Arizona to meet shipper demand. The FERC proceeding also
involves claims, among other things, that certain of the Partnership's rates and
charges on its East and West Lines are excessive. To date, the complainants have
filed testimony in the FERC proceeding seeking reparations for shipments between
1990 and 1994 aggregating approximately $35 million, as well as rate reductions
of between 30% and 40% for shipments in 1995 and thereafter. Hearings before a
FERC Administrative Law Judge are scheduled to commence in April 1996.

In July 1993, the Partnership reached a settlement with one of these shippers,
Navajo Refining Company ("Navajo"), whereby, among other things, Navajo agreed
to dismiss its pending civil litigation in New Mexico and the Partnership agreed
to make certain cash payments to Navajo over three years. The remaining civil
action, brought by El Paso Refinery, L.P. ("El Paso") and its general partner,
claims unspecified actual damages, which appear to include the $190 million cost
of a refinery expansion completed in 1992, plus punitive and consequential
damages.

In June 1995, the FERC issued a decision in an unrelated oil pipeline rate
proceeding involving Lakehead Pipe Line Company, Limited Partnership
("Lakehead") ruling that Lakehead, which is also a publicly traded partnership
engaged in oil pipeline transportation, may not include an income tax allowance
in its cost of service with respect to partnership income attributable to
limited partnership interests held by individuals. If this decision is upheld
and applied in the Partnership's FERC proceeding, it would reduce the
Partnership's allowable cost of service and, possibly, its revenues.

                                      18


<PAGE>
 
In 1993, the Partnership recorded a $12 million provision for litigation costs,
reflecting the terms of the Navajo settlement and management's estimate of other
costs related to the resolution of the FERC proceeding and El Paso's civil
action, and, during the quarter ended December 31, 1995, recorded a $10 million
provision to increase its existing reserves relating to the FERC proceeding, the
El Paso action and certain other matters. In the interim, lesser amounts of
litigation costs have, from time to time, been recorded as current period
expense.

While the Partnership believes it has meritorious defenses in these matters, the
complainants and plaintiffs are seeking amounts that, in the aggregate,
substantially exceed the Partnership's reserves and, because of the
uncertainties associated with litigation and FERC rate-making methodology,
management cannot predict with certainty the ultimate outcome of these matters.
As additional information becomes available, it may be necessary for the
Partnership to record additional charges to earnings to maintain its reserves at
a level deemed adequate at that time, and the costs associated with the ultimate
resolution of these matters could have a material adverse effect on the
Partnership's results of operations, financial condition, or ability to maintain
its quarterly cash distribution at the current level.

ENVIRONMENTAL
The Partnership's transportation and terminal operations are subject to
extensive regulation under federal, state and local environmental laws
concerning, among other things, the generation, handling, transportation and
disposal of hazardous materials and the Partnership is, from time to time,
subject to environmental cleanup and enforcement actions. In particular, the
federal Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA" or "Superfund" law) generally imposes joint and several liability for
cleanup and enforcement costs, without regard to fault or the legality of the
original conduct, on current or predecessor owners and operators of a site.

Along with several other respondents, the Partnership is presently involved in
one cleanup ordered by the United States Environmental Protection Agency related
to soil and groundwater contamination in the vicinity of the Partnership's
storage facilities and truck loading terminal at Sparks, Nevada. In addition,
the Partnership is presently involved in eleven groundwater hydrocarbon
remediation efforts under administrative orders issued by the California
Regional Water Quality Control Board and two other state agencies and, from time
to time, may be involved in groundwater investigations or remediations at the
direction of other governmental agencies. The Partnership is also involved in
soil and groundwater remediation projects, at and adjacent to various other
terminal and pipeline locations, that have not been mandated by government
agencies but are conducted in the ordinary course of business. In a number of
remediation projects, the Partnership is participating with other entities
ranging from large integrated petroleum companies to certain less financially
sound parties.

The Partnership accrues for environmental costs that relate to existing
conditions caused by past operations. Such costs include initial site surveys
and environmental studies of potentially contaminated sites, costs for
remediation and restoration of sites determined to be contaminated and ongoing
monitoring costs, as well as fines, damages and other costs, when estimable.
Estimates of the Partnership's ultimate liabilities associated with
environmental costs are particularly difficult to make with certainty due to the
number of variables involved, including the early stage of investigation at
certain sites, the lengthy time frames required to complete remediation at most
locations, the number of parties involved, the number of remediation
alternatives available, the uncertainty of potential recoveries from third
parties and the evolving nature of environmental laws and regulations.

                                      19


<PAGE>
 
The Partnership's environmental reserves are monitored on a regular basis by
management and are adjusted, from time to time, to reflect changing
circumstances and estimates. During 1993, the Partnership conducted a
comprehensive re-evaluation of its potential liabilities associated with
remediation activities at a number of sites and recorded a $15 million provision
to increase its reserve for environmental costs. During 1995, the Partnership,
as a member of a defendant group, reached agreements in principle settling all
of the claims for penalties and damages that had been asserted by several
governmental agencies and property owners in lawsuits associated with the soil
and groundwater contamination present in the vicinity of the Sparks, Nevada
environmental site. The Partnership recorded provisions for environmental costs
aggregating $24 million during 1995 largely to reflect its share of these
settlement costs.

The Partnership's balance sheet at December 31, 1995 and 1994 includes reserves
for environmental costs aggregating $37.1 million and $22.7 million,
respectively, which reflect the estimated cost of completing all remediation
projects presently known to be required, either by government mandate or in the
ordinary course of business, and the cost of performing preliminary
environmental investigations at several locations, as well as estimable
environmental damage claims, primarily associated with the Sparks environmental
site. With respect to the costs accrued at December 31, 1995, the Partnership
estimates that between $12.5 million and $15.0 million will be paid in 1996,
approximately $2 million to $4 million will be paid per year over the following
four years, and approximately $1 million or less will be paid per year over the
subsequent five years.

Based on the information presently available, it is the opinion of management
that the Partnership's environmental costs, to the extent they exceed recorded
liabilities, will not have a material adverse effect on the Partnership's
financial condition; nevertheless, it is possible that the Partnership's results
of operations in particular quarterly or annual periods could be materially
affected as additional information becomes available.

DEMAND FOR REFINED PETROLEUM PRODUCTS
Demand for transportation and terminaling services is principally a function of
product consumption and competition in markets served by the pipeline system.
Commercial volumes are generally dependent upon such factors as prevailing
economic conditions, demographic changes, transportation and terminaling
alternatives and, to a lesser degree, product prices paid by end-users. Military
volumes are dependent upon the level of activity at military bases served by the
Partnership.

During 1995, the pipeline systems, on average, operated at approximately 75% of
capacity. While capacity utilization on individual system segments generally
ranged from 70% to 90% of capacity, the lines from the Los Angeles area to San
Diego and Colton, California and from the San Francisco Bay area to Reno, Nevada
operated at or near full capacity for a portion of the year. Overall, volumes
have been moderately seasonal, with somewhat lower than average volumes being
transported during the first and fourth quarters of each year, although
deliveries to specific locations also experience seasonal variations.

OTHER
The Partnership leases certain rights-of-way under an agreement that became
subject to renegotiation effective January 1, 1994; however, to date, the
Partnership and the lessor have been unable to reach an agreement on the base
annual rental payments for the next ten-year period. In a judicial reference
proceeding in this matter, the lessor has asserted that the amount of the
easement rent should be increased from approximately $3.7 million per year to
$18.5 million per year, subject to annual inflation adjustments. The Partnership
has accrued for an increase in the annual rental effective January 1, 1994

                                      20


<PAGE>
 
and does not believe that the evidence provided by the lessor to date supports
an annual rental in excess of the amounts accrued; however, it is not presently
possible to predict with certainty the annual right-of-way rentals that will
ultimately be payable.

During 1994, the Partnership began a long-term pipeline reconditioning program
on its East Line and the Phoenix-to-Tucson segment of the West Line. In 1994 and
1995, the Partnership's field operating expenses included approximately $320,000
and $1,220,000, respectively, related to this program, which involves replacing
the pipeline's original coating and performing repairs determined to be
necessary. In 1996 and future years, the Partnership expects that an average of
30 miles of pipeline will be recoated annually, at an expected cost of
approximately $3,000,000 per year.

In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of" ("FAS 121"), which
prescribes accounting standards for the recognition and measurement of
impairment in long-lived assets, such as properties, plant and equipment.
Management does not expect that adoption of FAS 121, which is required no later
than the first quarter of 1996, will have a significant effect on the
Partnership's financial condition or results of operations.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Partnership's consolidated financial statements, together with the report
thereon of Price Waterhouse LLP dated January 26, 1996, are set forth on pages
F-1 through F-15 of this Report.


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

                                      21


<PAGE>
 
                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Registrant has no officers, directors or employees. Set forth below is
certain information concerning the directors and executive officers of the
General Partner.

Edward F. Swift, age 72, is a director of the General Partner, Chairman of the
Audit Committee and a member of the Compensation and Benefits Committee and
Committee on Directors. He has been a consultant to Lehman Brothers (investment
bankers) since 1990 and previously had been an advisory director of Shearson
Lehman Hutton, Inc. (investment banker and broker-dealer) since 1988.

Orval M. Adam, age 65, is a director of the General Partner, Chairman of the
Compensation and Benefits Committee and a member of the Audit Committee and
Committee on Directors. He retired in January 1991 from his position as Senior
Vice President and Chief Financial Officer of Santa Fe, which he held since
April 1988. Mr. Adam is also a director of SFP Pipeline Holdings, Inc., the sole
shareholder of the General Partner.

Wilford D. Godbold, Jr., age 57, is a director of the General Partner and a
member of the Audit Committee and Committee on Directors. Mr. Godbold has served
as President and Chief Executive Officer of ZERO Corporation (container
manufacturer) since 1984. Mr. Godbold is also a director of ZERO Corporation,
Pacific Enterprises and Southern California Gas Company.

Michael A. Morphy, age 63, is a director of the General Partner and a member of
the Audit Committee and Compensation and Benefits Committee. Mr. Morphy retired
in 1985 from his position as Chairman and Chief Executive Officer of California
Portland Cement Company (cement manufacturer). Mr. Morphy is also a director of
SFP Pipeline Holdings, Inc., the sole shareholder of the General Partner, Santa
Fe Energy Resources, Inc., First Interstate Bank of California and Cyprus Amax
Minerals Company.

Robert D. Krebs, age 53, is a director of the General Partner, Chairman of the
Committee on Directors and a member of the Compensation and Benefits Committee.
Mr. Krebs has served as President and Chief Executive Officer of Burlington
Northern Santa Fe Corporation ("BNSF") since September 1995, and, previously
served as Chairman, President and Chief Executive Officer of Santa Fe since
1988. Mr. Krebs is also a director of BNSF, Burlington Northern Inc., Burlington
Northern Railroad Company, Santa Fe Energy Resources, Inc., Santa Fe Pacific
Gold Corporation, Phelps Dodge Corporation and Northern Trust Corporation.

Denis E. Springer, age 50, is a director of the General Partner and a member of
the Compensation and Benefits Committee and Committee on Directors. Mr. Springer
has been Senior Vice President and Chief Financial Officer of BNSF since
September 1995 and, previously, served in those same positions at Santa Fe since
October 1993. Mr. Springer previously served Santa Fe as Senior Vice President,
Treasurer and Chief Financial Officer since January 1992, and as Vice President,
Treasurer and Chief Financial Officer since January 1991. Mr. Springer is also a
director of SFP Pipeline Holdings, Inc., the sole shareholder of the General
Partner, Burlington Northern Inc. and Burlington Northern Railroad Company.

Irvin Toole, Jr., age 54, is President, Chief Executive Officer and Chairman of
the Board of Directors of the General Partner. From November 1988 until election
to his present position in September 1991, Mr. Toole served as Senior Vice
President, Treasurer and Chief Financial Officer, and previously as Vice

                                      22


<PAGE>
 
President-Administration from February 1986 to November 1988. Mr. Toole is also
Chairman of the Board of Directors of SFP Pipeline Holdings, Inc., the sole
shareholder of the General Partner.

Robert L. Edwards, age 40, is a director of the General Partner and has been
Senior Vice President-Business Development and Planning of the General Partner
since January 1995. Previously, Mr. Edwards was Senior Vice President, Treasurer
and Chief Financial Officer from December 1991 through January 1995. Mr. Edwards
served Santa Fe from July 1990 through November 1991 as Vice President-
Administration. Prior to that, Mr. Edwards held various executive positions with
Santa Fe and the General Partner since May 1985. Mr. Edwards is also a director
of SFP Pipeline Holdings, Inc., the sole shareholder of the General Partner.

Barry R. Pearl, age 46, has been Senior Vice President, Treasurer and Chief
Financial Officer of the General Partner since January 1995. Mr. Pearl
previously served as Senior Vice President-Business Development and Planning
between January 1992 and January 1995, as Vice President-Business Development
and Planning between November 1988 and January 1992 and as Vice President-
Operations between May 1986 and November 1988.

John M. Abboud, age 53, has been Senior Vice President-Operations and
Engineering of the General Partner since 1985. In his current capacity, Mr.
Abboud is responsible for operations, engineering and environmental affairs.

Lyle B. Boarts, age 52, has been Vice President-Human Resources of the General
Partner since November 1988. Previously, Mr. Boarts was Director of Human
Resources since June 1986.

R. Gregory Cunningham, age 50, has been Vice President-General Counsel since
January 1994. Previously, he served as General Counsel of the General Partner
since January 1991 and, prior to such date, as General Attorney since November
1985.

Burnell H. DeVos III, age 42, has served as Controller and Secretary of the
General Partner since January 1993. Mr. DeVos was Assistant Controller of the
General Partner from May 1989 through December 1992.

Patrick L. Avery, age 43, has served as Vice President-Environmental and Safety
of the General Partner since October 1993. Mr. Avery was Corporate Environmental
Manager at Amerada Hess Corporation from October 1992 to October 1993.
Previously, he held various positions at ARCO Products Company since 1982,
including Director-California Government Relations and Environmental Health and
Safety Manager at ARCO's Los Angeles refinery.

William M. White, age 50, has served as Vice President-Engineering of the
General Partner, with responsibility for engineering and construction, since
January 1993. Mr. White previously was Manager-Northern District from May 1986
through December 1992.


ITEM 11. EXECUTIVE COMPENSATION.

The directors, officers and employees of the General Partner receive no direct
compensation from the Partnership for their services to the Partnership. The
Partnership reimburses the General Partner for all direct costs incurred in
managing the Partnership and all indirect costs (principally salaries and other
general and administrative costs) allocable to the Partnership.

                                      23


<PAGE>
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

(a) Security Ownership of Certain Beneficial Owners

To the best of the General Partner's knowledge, the following persons are the
only persons who are beneficial owners of more than five percent of the
Registrant's equity securities:

<TABLE>
<CAPTION>
 
                                                            Number      Percent
       Title of Class               Name and Address       of Units    of Class
    --------------------       ------------------------    ---------   --------- 
<S>                             <C>                        <C>         <C>
Common units                    Santa Fe Pacific           8,148,148       42.6%
                                Pipelines, Inc. (1)
                                888 South Figueroa
                                 Street
                                Los Angeles, CA  90017
 
Common units                    J. P. Morgan & Co.,        2,984,724       15.6%
                                 Incorporated (2)
                                60 Wall Street
                                New York, NY  10260
 
Common units                    Pioneering Management      1,098,000        5.7%
                                 Corporation (3)
                                60 State Street
                                Boston, MA  02109
</TABLE>

   (1) As discussed in Items 1 and 2 of this Report, Santa Fe Pacific Pipelines,
       Inc. is also the general partner of the Partnership, referred to herein
       as the "General Partner," and is a wholly owned indirect subsidiary of
       Santa Fe Pacific Corporation ("Santa Fe"). On September 22, 1995, Santa
       Fe and Burlington Northern Inc. consummated a business combination
       pursuant to which each became direct or indirect wholly owned
       subsidiaries of a new publicly-held company, Burlington Northern Santa Fe
       Corporation. Management believes that this merger will have no
       significant impact on the operations or financial condition of the
       Partnership or the General Partner.

   (2) This information is based on a Securities and Exchange Commission
       Schedule 13-G report by J. P. Morgan & Co., Incorporated, dated January
       31, 1996, and filed on February 9, 1996.

   (3) This information is based on a Securities and Exchange Commission
       Schedule 13-G report by Pioneering Management Corporation, dated January
       9, 1996, and filed on January 10, 1996.

(b) Security Ownership of Management

As of March 1, 1996, common units beneficially held by all directors and
officers as a group represented less than 1% of the Partnership's outstanding
units.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Registrant and the Operating Partnership are managed by the General Partner
pursuant to the Amended and Restated Agreement of Limited Partnership of the
Partnership (the "Partnership Agreement"), and the Amended and Restated
Agreement of Limited Partnership of the Operating Partnership (the "Operating
Partnership Agreement"). Under the Partnership Agreement and Operating
Partnership Agreement, the General Partner and certain related parties are
entitled to reimbursement of all direct and indirect costs and expenses related
to the business activities of the Partnership and the Operating Partnership.
These costs and expenses include compensation and benefits payable to officers
and employees of the General Partner, payroll taxes, corporate office building
rentals, general and administrative costs, and legal and other professional
services fees. These costs to the Partnership totaled $49.3 million, $44.2
million and $43.0 million in 1995, 1994 and 1993, respectively.

                                      24


<PAGE>
 
The Partnership Agreement provides for incentive distribution payments to the
General Partner out of the Partnership's "Available Cash" (as defined in the
Partnership Agreement) which increase as quarterly distributions to unitholders
exceed certain specified targets. The incremental incentive distributions
payable to the General Partner are 8%, 18% and 28% of all distributions of
Available Cash that exceed, respectively, $0.60, $0.65 and $0.70 per unit. Such
incentive distributions aggregated $2,351,000 in 1995 and $1,202,000 in the
years 1994 and 1993.


                                    PART IV

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

(a) The following documents are filed as a part of this Report: 
                                                                
<TABLE>
<CAPTION>
                                                                                       Page
                                                                                       ----
 <S>                                                                                   <C> 
 (1) Financial Statements:
     Report of Independent Accountants..............................................   F-1
     Consolidated Balance Sheet as of December 31, 1995 and 1994....................   F-2
     Consolidated Statement of Income for the three years ended December 31, 1995...   F-3
     Consolidated Statement of Cash Flows for the three years
         ended December 31, 1995....................................................   F-4
     Notes to Consolidated Financial Statements.....................................   F-5
</TABLE>


(2) Financial Statement Schedules: None.

(3) Exhibits: The following exhibits are filed as a part of this Report. With
    the exception of Exhibits 21, 24 and 27, all exhibits listed herein are
    incorporated by reference, with the location of the exhibit in the
    Registrant's previous filing being indicated parenthetically.

 
 Exhibit
 Number                                 Description
-------  -----------------------------------------------------------------------

  3.1    Amended and Restated Agreement of Limited Partnership of the
         Registrant, dated as of December 19, 1988. (1988 Form 10-K - Exhibit
         3.1)
  3.2    Amended and Restated Agreement of Limited Partnership of the Operating
         Partnership, dated as of December 19, 1988. (1988 Form 10-K - Exhibit
         3.2)
  3.3    Certificate of Limited Partnership of the Registrant, dated as of
         August 23, 1988. (1988 Form 10-K - Exhibit 3.3)
  3.4    Certificate of Limited Partnership of the Operating Partnership, dated
         as of August 23, 1988. (1988 Form 10-K - Exhibit 3.5)
  3.5    Assumption Agreement between the Registrant and Santa Fe Pacific
         Pipelines, Inc., dated as of December 7, 1989. (1989 Form 10-K -
         Exhibit 3.4)
  3.6    Amendment No. 1 to Amended and Restated Agreement of Limited
         Partnership of the Registrant, dated as of December 7, 1989. (1989 Form
         10-K - Exhibit 3.2)
  3.7    Certificate of Amendment to Certificate of Limited Partnership of the
         Registrant, dated as of December 7, 1989. (1989 Form 10-K - Exhibit
         3.3)
  3.8    Amendment No. 1 to Amended and Restated Agreement of Limited
         Partnership of the Operating Partnership, dated as of December 7, 1989.
         (1989 Form 10-K - Exhibit 3.5)
  3.9    Certificate of Amendment to Certificate of Limited Partnership of the
         Operating Partnership, dated as of December 7, 1989. (1989 Form 10-K -
         Exhibit 3.6)
  3.10   Amendment No. 2 to Amended and Restated Agreement of Limited
         Partnership of the Operating Partnership, dated as of January 24, 1990.
         (1989 Form 10-K - Exhibit 3.8)

                                      25


<PAGE>
 
Exhibit
 Number                        Description
--------    --------------------------------------------------------------------
  3.11   Certificate of Amendment No. 2 to Certificate of Limited Partnership of
         the Operating Partnership, dated as of January 30, 1990. (1989 Form
         10-K - Exhibit 3.9)
  4.1    Form of Deposit Agreement between the Registrant, American Stock
         Transfer & Trust Company and the General Partner, as attorney-in-fact
         for holders of units and depositary receipts. (Form S-1 Registration
         Statement No. 33-24395 - Exhibit 4.1)
  4.2    First Mortgage Note Agreement, dated December 8, 1988 (a conformed
         composite of 54 separate agreements, identical except for signatures).
         (1988 Form 10-K - Exhibit 4.2)
  4.3    Deed of Trust, Security Agreement and Fixture Filing, dated December 8,
         1988, between the Operating Partnership, the General Partner, Chicago
         Title Insurance Company and Security Pacific National Bank. (1988 Form
         10-K - Exhibit 4.3)
  4.4    Trust Agreement, dated December 19, 1988, between the Operating
         Partnership, the General Partner and Security Pacific National Bank.
         (1988 Form 10-K - Exhibit 4.4)
  4.5    The Operating Partnership has established a $60 million term credit
         facility with three banks, dated as of October 14, 1993. As the maximum
         allowable borrowings under this facility do not exceed 10% of the
         Registrant's total assets, this instrument is not filed as an exhibit
         to this Report, however, the Registrant hereby agrees to furnish a copy
         of such instrument to the Securities and Exchange Commission upon
         request.
  21     Subsidiaries of the Registrant*
  24     Powers of attorney*
  27     Financial Data Schedule as of and for the year ended December 31, 1995*

           * Filed herewith.

(b) Reports on Form 8-K filed during the quarter ended December 31, 1995: None

                                      26

<PAGE>
 

                                   SIGNATURES

Santa Fe Pacific Pipeline Partners, L.P., pursuant to the requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, has duly caused this
Report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
                                    SANTA FE PACIFIC PIPELINE PARTNERS, L.P.
                                                (Registrant)
                                By: Santa Fe Pacific Pipelines, Inc., as
                                                General Partner
 
Dated: March 20, 1996           By:          /s/ IRVIN TOOLE, JR.
                                    --------------------------------------
                                                 Irvin Toole, Jr.
                                    Chairman, President and Chief Executive
                                    Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities with Santa Fe Pacific Pipelines, Inc., as General Partner, and
on the date indicated.

<TABLE>
<CAPTION>
          Signature                                               Title
-----------------------------                         ---------------------------
<S>                                                   <C>
                                                         Chairman, President and
/s/ IRVIN TOOLE, JR.                                     Chief Executive Officer
---------------------------------------------------       (Principal Executive
Irvin Toole, Jr.                                                 Officer) 
                                                              and Director
 
                                                          Senior Vice President-
/s/ ROBERT L. EDWARDS                                      Business Development
---------------------------------------------------            and Planning                                 
Robert L. Edwards                                              and Director
 
                                                          Senior Vice President,
/s/ BARRY R. PEARL                                              Treasurer
---------------------------------------------------         and Chief Financial
Barry R. Pearl                                                  Officer 
                                                       (Principal Financial Officer) 

                                                         Controller and Secretary  
/s/ BURNELL H. DEVOS III                                (Principal Accounting
---------------------------------------------------            Officer)        
Burnell H. DeVos III                                    
                                      
EDWARD F. SWIFT*
--------------------------------------------------
Edward F. Swift                                                  Director
 
ORVAL M. ADAM*
--------------------------------------------------
Orval M. Adam                                                    Director
 
WILFORD D. GODBOLD, JR.*
--------------------------------------------------
Wilford D. Godbold, Jr.                                          Director
 
MICHAEL A. MORPHY*
--------------------------------------------------
Michael A. Morphy                                                Director
 
ROBERT D. KREBS*
--------------------------------------------------
Robert D. Krebs                                                  Director
 
DENIS E. SPRINGER*
------------------------------------------------------
Denis E. Springer                                                Director
 
*By:        /s/ BARRY R. PEARL
     ----------------------------------------
        Barry R. Pearl, attorney in fact
 
Dated: March 20, 1996
</TABLE>

                                      27


<PAGE>
 
                       REPORT OF INDEPENDENT ACCOUNTANTS



TO THE PARTNERS OF SANTA FE PACIFIC PIPELINE PARTNERS, L.P.

In our opinion, the consolidated financial statements listed in the index
appearing under Item 14 (a) (1) on page 25 present fairly, in all material
respects, the financial position of Santa Fe Pacific Pipeline Partners, L.P. and
its majority-owned operating partnership at December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Partnership's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.



PRICE WATERHOUSE LLP

Los Angeles, California
January 26, 1996

                                      F-1
<PAGE>
 
                   SANTA FE PACIFIC PIPELINE PARTNERS, L.P.
                          CONSOLIDATED BALANCE SHEET

                                (IN THOUSANDS)

<TABLE> 
<CAPTION> 
                                                                      December 31,
                                                                -------------------------
                                                                   1995          1994
                                                                ----------    -----------
<S>                                                             <C>           <C> 
          ASSETS
Current assets
   Cash and cash equivalents................................     $ 41,219       $ 48,948
   Accounts receivable, net.................................       38,897         36,470
   Other current assets.....................................        2,139          2,420
                                                                 --------       --------
      Total current assets..................................       82,255         87,838
                                                                 --------       --------
Properties, plant and equipment.............................      716,197        691,263
   Less accumulated depreciation............................       92,879         78,224
                                                                 --------       --------
      Net properties, plant and equipment..................       623,318        613,039
Other assets...............................................        15,281         13,895
                                                                 --------       --------
      Total assets.........................................      $720,854       $714,772
                                                                 ========       ========
         LIABILITIES AND PARTNERS' CAPITAL
Current liabilities
   Accounts payable........................................      $  3,466       $  3,369
   Accrued liabilities.....................................        30,609         28,403
                                                                 --------       --------
      Total current liabilities............................        34,075         31,772
Long-term debt.............................................       355,000        355,000
Other long-term liabilities................................        60,468         38,363
                                                                 --------       --------
      Total liabilities....................................       449,543        425,135
                                                                 --------       --------
Minority interest..........................................         1,246          1,676
                                                                 --------       --------
Commitments and contingencies (Note 4).....................    
                                                                 --------       --------
Partners' capital
   General Partner.........................................         1,246          1,676
   Limited Partners........................................       268,819        286,285
                                                                 --------       --------
      Total partners' capital..............................       270,065        287,961
                                                                 --------       --------
      Total liabilities and partners' capital..............      $720,854       $714,772
                                                                 ========       ========
</TABLE> 

                See Notes to Consolidated Financial Statements.

                                      F-2
<PAGE>
 
                   SANTA FE PACIFIC PIPELINE PARTNERS, L.P.
                       CONSOLIDATED STATEMENT OF INCOME

                    (IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)

<TABLE> 
<CAPTION> 
                                                    Year ended December 31,
                                               --------------------------------
                                                 1995        1994        1993
                                               --------    --------    --------
<S>                                            <C>         <C>         <C> 
Operating revenues
   Trunk revenues ...........................  $183,255    $179,339    $171,848
   Storage and terminaling revenues .........    37,653      37,262      37,213
   Other revenues ...........................    12,769      11,465      10,410
                                               --------    --------    --------
      Total operating revenues ..............   233,677     228,066     219,471
                                               --------    --------    --------
Operating expenses
   Field operating expenses .................    33,013      32,492      34,305
   General and administrative expenses ......    27,462      22,753      22,378
   Power costs ..............................    21,715      20,698      18,940
   Facilities costs .........................    21,006      21,256      19,555
   Depreciation and amortization ............    20,500      19,820      18,971
   Provisions for environmental
    and litigation costs (Note 4) ...........    34,000          --      27,000
                                               --------    --------    --------
      Total operating expenses ..............   157,696     117,019     141,149
                                               --------    --------    --------
Operating income ............................    75,981     111,047      78,322
Interest expense ............................    37,247      37,570      37,086
Other income, net ...........................     2,978       5,037       1,262
                                               --------    --------    --------
Net income before minority interest .........    41,712      78,514      42,498
Less minority interest ......................    (1,345)     (1,629)       (882)
                                               --------    --------    --------
Net income ..................................  $ 40,367    $ 76,885    $ 41,616
                                               ========    ========    ========
Net income per unit .........................  $   2.04    $   3.93    $   2.13
                                               ========    ========    ========
Operating expenses reflected above include
 the following expenses incurred by, and
 reimbursed to, the General Partner (Note 5).  $ 49,345    $ 44,220    $ 43,025
                                               ========    ========    ========
</TABLE> 

                See Notes to Consolidated Financial Statements.

                                      F-3

<PAGE>
 
                   SANTA FE PACIFIC PIPELINE PARTNERS, L.P.

                     CONSOLIDATED STATEMENT OF CASH FLOWS
                                (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                 Year ended December 31,         
                                                           -----------------------------------   
                                                             1995         1994          1993     
                                                           --------     --------      --------   
<S>                                                        <C>           <C>          <C>        
Cash flows from operating activities:                                                            
  Net income.......................................        $ 40,367     $ 76,885      $ 41,616   
                                                           --------     --------      --------   
  Adjustments to reconcile net income to                                                         
   net cash provided by operating activities--                                                   
    Depreciation and amortization..................          20,500       19,820        18,971   
    Minority interest in net income................           1,345        1,629           882   
    Environmental and litigation provisions                                                      
     and payments, net.............................          24,738       (5,914)       22,725   
    Other, net.....................................            (429)       1,296          (464)  
    Changes in:                                                                                  
      Accounts receivable..........................          (2,427)      (3,683)       (4,636)  
      Accounts payable and accrued liabilities.....            (634)        (399)        2,375   
      Other current assets.........................             281          381            81   
                                                           --------     --------      --------   
        Total adjustments..........................          43,374       13,130        39,934   
                                                           --------     --------      --------   
        Net cash provided by operating activities..          83,741       90,015        81,550   
                                                           --------     --------      --------   
Cash flows from investing activities:                                                            
  Capital expenditures.............................         (31,431)     (17,913)      (21,084)  
  Other............................................              --          620           276   
                                                           --------     --------      --------   
        Net cash used by investing activities......         (31,431)     (17,293)      (20,808)  
                                                           --------     --------      --------   
Cash flows from financing activities:                                                            
  Distributions to partners and minority interest..         (60,039)     (55,936)      (55,936)  
  Repayment of long-term debt......................         (17,000)     (11,000)           --   
  Proceeds from issuance of long-term debt.........          17,000       11,000            --   
                                                           --------     --------      --------   
        Net cash used by financing activities......         (60,039)     (55,936)      (55,936)  
                                                           --------     --------      --------   
Increase (decrease) in cash and cash equivalents...          (7,729)      16,786         4,806   
                                                                                                 
Cash and cash equivalents--                                                                      
  Beginning of year................................          48,948       32,162        27,356   
                                                           --------     --------      --------   
  End of year......................................        $ 41,219     $ 48,948      $ 32,162   
                                                           ========     ========      ========    
</TABLE>

                See Notes to Consolidated Financial Statements.

                                      F-4
<PAGE>
 
                    SANTA FE PACIFIC PIPELINE PARTNERS, L.P.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------

ORGANIZATION AND BASIS OF ACCOUNTING - The accompanying consolidated financial
statements include the accounts of Santa Fe Pacific Pipeline Partners, L.P. (the
"Trading Partnership") and SFPP, L.P., (the "Operating Partnership"),
collectively referred to as the "Partnership", on a consolidated basis. The
Trading Partnership is a publicly traded limited partnership organized under the
laws of the state of Delaware in 1988 which owns a 99% limited partnership
interest in the Operating Partnership, through which the Partnership conducts
all its operations. The Operating Partnership was acquired by the Trading
Partnership in December 1988 and is engaged in the transportation of refined
petroleum products and related services.

The Operating Partnership is managed by its general partner, Santa Fe Pacific
Pipelines, Inc. (the "General Partner"), which, by virtue of its 1% general
partner interest, represents the minority interest in the Partnership's
consolidated financial statements. The General Partner, which is a wholly owned
indirect subsidiary of Santa Fe Pacific Corporation ("Santa Fe"), also holds the
1% general partner interest in the Trading Partnership and, therefore, in total,
holds a 2% general partner interest in the Partnership on a consolidated basis.
In addition, the General Partner owns 8,148,148 Partnership common units,
representing an approximate 42% limited partner interest in the Trading
Partnership. In September 1995, Santa Fe and Burlington Northern Inc.
consummated a business combination pursuant to which Santa Fe became a
subsidiary of a new publicly-held company, Burlington Northern Santa Fe
Corporation ("BNSF"). The remaining approximate 56% limited partner ownership in
the Trading Partnership is represented by 11,000,000 publicly traded common
units.

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 revenues and expenses during the periods presented.
Actual results could differ from those estimates.

REVENUE RECOGNITION - Substantially all revenues are derived from pipeline
transportation and storage and terminaling charges and are recognized in income
upon delivery. Other revenues, primarily incidental service charges and tank and
land rentals, are recognized as earned.

Operating revenues received from ARCO Products Company and Chevron U.S.A.
Products Company accounted for 16.3% and 13.3%, respectively, of total 1995
revenues. These two customers accounted for 16.1% and 12.4%, respectively, of
total 1994 revenues, and for 16.9% and 12.9%, respectively, of total 1993
revenues. In addition, Texaco Refining and Marketing Inc. accounted for 10.2% of
total 1993 revenues.

The Partnership's interstate common carrier pipeline operations are subject to
rate regulation by the Federal Energy Regulatory Commission ("FERC") under a
rate-making methodology that is subject to clarification and reconsideration in
individual cases and leaves many issues for determination on a case-by-case
basis. The Partnership's California intrastate common carrier pipeline
operations are subject to rate regulation by the California Public Utilities
Commission.

                                      F-5
<PAGE>
 
PROPERTIES, PLANT AND EQUIPMENT - Properties are stated at cost and include
capitalized interest on borrowed funds. Additions and replacements are
capitalized. Expenditures for maintenance and repairs are charged to income.
Upon sale or retirement of depreciable properties, cost less salvage is charged
to accumulated depreciation.

Properties are depreciated on a straight-line basis over the estimated service
lives of the related assets. Rates for the Partnership's interstate pipeline
properties are prescribed by the FERC. The Partnership's intrastate pipeline
properties and its terminal properties are depreciated using similar rates. The
following annual rates were used in computing depreciation:

<TABLE>
    <S>                                                          <C>
    Rights-of-way.............................................             2.60%
    Line pipe, fittings and pipeline construction.............    2.22% to 2.60%
    Buildings and field equipment.............................    2.95% to 4.00%
    Storage tanks and delivery facilities.....................    3.10% to 3.20%
    Vehicles, office and communications equipment.............   3.00% to 15.70%
</TABLE>

Depreciation expense aggregated $17,680,000 in 1995, $17,445,000 in 1994 and
$16,920,000 in 1993.

ENVIRONMENTAL COSTS - Environmental expenditures that relate to current or
future revenues are expensed or capitalized, as appropriate. Expenditures that
relate to an existing condition caused by past operations, and do not contribute
to current or future revenue generation, are expensed. Liabilities are recorded
when environmental assessments and/or clean-ups are probable and the costs can
be reasonably estimated.

INCOME PER UNIT - Income per unit is computed based upon net income of the
Partnership less an allocation of income to the general partner of the Trading
Partnership in accordance with the partnership agreement, and is based upon
19,148,148 common units. The quarterly allocation of net income to the general
partner of the Trading Partnership (which is always equivalent to the minority
interest in net income) is based on its percentage of cash distributions from
Available Cash at the end of each quarter (see Note 7). The general partner of
the Trading Partnership was allocated 3.23%, 2.07% and 2.07% of net income
before minority interest for the years 1995, 1994 and 1993, respectively.

INCOME TAX - For federal and state income tax purposes, the Partnership is not a
taxable entity. Accordingly, the taxable income or loss resulting from the
operations of the Partnership is ultimately includable in the federal and state
income tax returns of the general and limited partners, and may vary
substantially from the income or loss reported for financial reporting purposes.

CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS - The Partnership considers all
highly liquid investments with a maturity of three months or less when purchased
to be cash equivalents.

RECLASSIFICATIONS - Certain comparative prior year amounts have been
reclassified to conform with the current year presentation.

                                      F-6
<PAGE>
 
NOTE 2 - DETAIL OF SELECTED BALANCE SHEET ACCOUNTS
--------------------------------------------------
<TABLE>
<CAPTION>
                                                                                        December 31,
                                                                                --------------------------
(In thousands)                                                                    1995             1994
                                                                                --------         ---------
<S>                                                                             <C>              <C>
ACCOUNTS RECEIVABLE:
  Trade accounts receivable.................................................    $ 22,071          $ 24,094
  Recollectible construction and maintenance expenditures...................       7,333             5,040
  Environmental insurance claims............................................       4,477             3,671
  Other.....................................................................       5,016             3,665
                                                                                --------          --------
                                                                                $ 38,897          $ 36,470
                                                                                ========          ========

PROPERTIES, PLANT AND EQUIPMENT:
  Land......................................................................    $ 55,984          $ 56,000
  Rights-of-way.............................................................      12,680            12,677
  Line pipe, fittings and pipeline construction.............................     293,858           288,303
  Buildings and equipment...................................................     168,361           165,613
  Storage tanks and delivery facilities.....................................     162,470           149,162
  Construction in progress..................................................      22,844            19,508
                                                                                --------          --------
                                                                                 716,197           691,263
  Less accumulated depreciation.............................................      92,879            78,224
                                                                                --------          --------
                                                                                $623,318          $613,039
                                                                                ========          ========
ACCRUED LIABILITIES:
  Environmental costs.......................................................    $ 12,500          $  6,310
  Capital expenditures and major maintenance................................       4,441             4,558
  Right-of-way rents........................................................       4,315             2,495
  Property taxes............................................................       3,019             2,980
  Interest..................................................................       2,171             1,695
  Product loss reserve......................................................       1,343             2,820
  East Line litigation costs................................................          -              3,250
  Other.....................................................................       2,820             4,295
                                                                                --------          --------
                                                                                $ 30,609          $ 28,403
                                                                                ========          ========
</TABLE>

                                      F-7
<PAGE>
 
NOTE 3 - LONG-TERM DEBT
-----------------------

Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                                            December 31,
                                                                     ------------------------
   (In thousands)                                                      1995            1994
                                                                     --------        --------
   <S>                                                               <C>             <C>
   First Mortgage Notes:
       Series B 10.00% due December 1995..........................   $     -         $ 17,000
       Series C 10.05% due December 1996..........................     22,000          22,000
       Series D 10.15% due December 1997..........................     28,500          28,500
       Series E 10.25% due December 1998..........................     32,500          32,500
       Series F 10.70% due December 1999 through 2004.............    244,000         244,000
                                                                     --------        --------
                                                                      327,000         344,000
   Bank term loans, due April 1999 through September 2001.........     28,000          11,000
                                                                     --------        --------
                                                                     $355,000        $355,000
                                                                     ========        ========
</TABLE>
                                                         
The Partnership intends to refinance the Series C Notes on a long-term basis
upon their maturity and, therefore, has included them in long-term debt at
December 31, 1995. The Series F Notes become payable in annual installments,
including $31.5 million in 1999 and $32.5 million in 2000. The Notes may also be
prepaid beginning in 1999 in full or in part at a price equal to par plus, in
certain circumstances, a premium.

The First Mortgage Notes (the "Notes") are secured by mortgages on substantially
all of the properties of the Partnership (the "Mortgaged Property"). The Notes
contain covenants specifying certain limitations on the Partnership's operations
including the amount of additional debt or equity that may be issued, cash
distributions, investments and property dispositions. Management does not
believe such limitations will adversely affect the Partnership's ability to fund
its operations or planned capital expenditures.

The Partnership has arranged a $60 million multi-year term credit facility and a
$20 million working capital facility with three banks. The term facility is
available for refinancing a portion of the Partnership's long-term debt and
capital projects, and may be utilized on a revolving basis through October 1998,
with any outstanding balance at that time converted to a three-year amortizing
term loan. Borrowings under the term facility are also secured by the Mortgaged
Property and are generally subject to the same terms and conditions as the
Notes. In December 1994, the Partnership refinanced the Series A Notes by
borrowing $11 million under this facility and, in December 1995, refinanced the
Series B Notes by borrowing an additional $17 million under this facility. The
Partnership has selected an interest rate on this loan that is presently
determined by reference to a short-term Eurodollar rate, and was 6-5/16% at
December 31, 1995.

Advances under the $20 million working capital credit facility can be used for
general Partnership purposes and would be secured by certain of the
Partnership's accounts receivable. This facility may not be utilized for a 45-
day period, the designation of such period to be at the Partnership's
discretion, during each year. This facility also provides for certain interest
rate options, and is subject to annual renewal and other reasonable and
customary terms and conditions. To date, the working capital facility has not
been utilized.

                                      F-8
<PAGE>
 
Interest on the Notes is payable semiannually in June and December. Interest on
the bank term loan is generally payable quarterly. Total interest paid was
$36,985,000 during 1995 and $37,326,000 during both 1994 and 1993. Interest
capitalized during the years 1995, 1994 and 1993 aggregated $405,000, $205,000
and $600,000, respectively.

The fair value of the Partnership's long-term debt was approximately $430
million at December 31, 1995. Such estimate represents the present value of
interest and principal payments on the Notes discounted at present market
yields, and assumes the Series F Notes will be prepaid in full in 1999 at par
plus a premium. The fair market value of the term loan is considered to be equal
to its principal amount.


NOTE 4 - COMMITMENTS AND CONTINGENCIES
--------------------------------------

East Line Civil Litigation and FERC Proceeding

Certain of the Partnership's shippers have filed civil suits and initiated
Federal Energy Regulatory Commission ("FERC") complaint proceedings alleging,
among other things, that the shippers were damaged by the Partnership's failure
to fulfill alleged promises to expand the East Line's capacity between El Paso,
Texas and Phoenix, Arizona to meet shipper demand. The FERC proceeding also
involves claims, among other things, that certain of the Partnership's rates and
charges on its East and West Lines are excessive. To date, the complainants have
filed testimony in the FERC proceeding seeking reparations for shipments between
1990 and 1994 aggregating approximately $35 million, as well as rate reductions
of between 30% and 40% for shipments in 1995 and thereafter. Hearings before a
FERC Administrative Law Judge are scheduled to commence in April 1996.

In July 1993, the Partnership reached a settlement with one of these shippers,
Navajo Refining Company ("Navajo"), whereby, among other things, Navajo agreed
to dismiss its pending civil litigation in New Mexico and the Partnership agreed
to make certain cash payments to Navajo over three years. The remaining civil
action, brought by El Paso Refinery, L.P. ("El Paso") and its general partner,
claims unspecified actual damages, which appear to include the $190 million cost
of a refinery expansion completed in 1992, plus punitive and consequential
damages.

In June 1995, the FERC issued a decision in an unrelated oil pipeline rate
proceeding involving Lakehead Pipe Line Company, Limited Partnership
("Lakehead") ruling that Lakehead, which is also a publicly traded partnership
engaged in oil pipeline transportation, may not include an income tax allowance
in its cost of service with respect to partnership income attributable to
limited partnership interests held by individuals. If this decision is upheld
and applied in the Partnership's FERC proceeding, it would reduce the
Partnership's allowable cost of service and, possibly, its revenues.

In 1993, the Partnership recorded a $12 million provision for litigation costs,
reflecting the terms of the Navajo settlement and management's estimate of other
costs related to the resolution of the FERC proceeding and El Paso's civil
action, and, during the quarter ended December 31, 1995, recorded a $10 million
provision to increase its existing reserves relating to the FERC proceeding, the
El Paso action and certain other matters. In the interim, lesser amounts of
litigation costs have, from time to time, been recorded as current period
expense.

                                      F-9
<PAGE>
 
While the Partnership believes it has meritorious defenses in these matters, the
complainants and plaintiffs are seeking amounts that, in the aggregate,
substantially exceed the Partnership's reserves and, because of the
uncertainties associated with litigation and FERC rate-making methodology,
management cannot predict with certainty the ultimate outcome of these matters.
As additional information becomes available, it may be necessary for the
Partnership to record additional charges to earnings to maintain its reserves at
a level deemed adequate at that time, and the costs associated with the ultimate
resolution of these matters could have a material adverse effect on the
Partnership's results of operations, financial condition, or ability to maintain
its quarterly cash distribution at the current level.

Environmental

The Partnership's transportation and terminal operations are subject to
extensive regulation under federal, state and local environmental laws
concerning, among other things, the generation, handling, transportation and
disposal of hazardous materials and the Partnership is, from time to time,
subject to environmental cleanup and enforcement actions. In particular, the
federal Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA" or "Superfund" law) generally imposes joint and several liability for
cleanup and enforcement costs, without regard to fault or the legality of the
original conduct, on current or predecessor owners and operators of a site.

Along with several other respondents, the Partnership is presently involved in
one cleanup ordered by the United States Environmental Protection Agency related
to soil and groundwater contamination in the vicinity of the Partnership's
storage facilities and truck loading terminal at Sparks, Nevada. In addition,
the Partnership is presently involved in eleven groundwater hydrocarbon
remediation efforts under administrative orders issued by the California
Regional Water Quality Control Board and two other state agencies and, from time
to time, may be involved in groundwater investigations or remediations at the
direction of other governmental agencies. The Partnership is also involved in
soil and groundwater remediation projects, at and adjacent to various other
terminal and pipeline locations, that have not been mandated by government
agencies but are conducted in the ordinary course of business. In a number of
remediation projects, the Partnership is participating with other entities
ranging from large integrated petroleum companies to certain less financially
sound parties.

The Partnership accrues for environmental costs that relate to existing
conditions caused by past operations. Such costs include initial site surveys
and environmental studies of potentially contaminated sites, costs for
remediation and restoration of sites determined to be contaminated and ongoing
monitoring costs, as well as fines, damages and other costs, when estimable.
Estimates of the Partnership's ultimate liabilities associated with
environmental costs are particularly difficult to make with certainty due to the
number of variables involved, including the early stage of investigation at
certain sites, the lengthy time frames required to complete remediation at most
locations, the number of parties involved, the number of remediation
alternatives available, the uncertainty of potential recoveries from third
parties and the evolving nature of environmental laws and regulations.

The Partnership's environmental reserves are monitored on a regular basis by
management and are adjusted, from time to time, to reflect changing
circumstances and estimates. During 1993, the Partnership conducted a
comprehensive re-evaluation of its potential liabilities associated with
remediation activities at a number of sites and recorded a $15 million provision
to increase its reserve for environmental costs. During 1995, the Partnership,
as a member of a defendant group, reached agreements in principle settling all
of the claims for penalties and damages that had been asserted by several
governmental agencies and property owners in lawsuits associated with the soil
and

                                     F-10
<PAGE>
 
groundwater contamination present in the vicinity of the Sparks, Nevada
environmental site. The Partnership recorded provisions for environmental costs
aggregating $24 million during 1995 largely to reflect its share of these
settlement costs.

The Partnership's balance sheet at December 31, 1995 and 1994 includes reserves
for environmental costs aggregating $37.1 million and $22.7 million,
respectively, which reflect the estimated cost of completing all remediation
projects presently known to be required, either by government mandate or in the
ordinary course of business, and the cost of performing preliminary
environmental investigations at several locations, as well as estimable
environmental damage claims, primarily associated with the Sparks environmental
site. With respect to the costs accrued at December 31, 1995, the Partnership
estimates that between $12.5 million and $15.0 million will be paid in 1996,
approximately $2 million to $4 million will be paid per year over the following
four years, and approximately $1 million or less will be paid per year over the
subsequent five years.

Based on the information presently available, it is the opinion of management
that the Partnership's environmental costs, to the extent they exceed recorded
liabilities, will not have a material adverse effect on the Partnership's
financial condition; nevertheless, it is possible that the Partnership's results
of operations in particular quarterly or annual periods could be materially
affected as additional information becomes available.

Other Claims and Litigation

The Partnership is also party to a number of other legal actions arising in the
ordinary course of business. While the final outcome of these other matters
cannot be predicted with certainty, it is the opinion of management that none of
these other legal actions, either individually or in the aggregate, when finally
resolved, will have a material adverse effect on the annual results of
operations, financial condition or liquidity of the Partnership.

Lease Commitments

The Partnership and the General Partner lease space in office buildings and
certain computer equipment. Total lease commitments not subject to cancellation
at December 31, 1995 are as follows: $1,680,000 in 1996, $1,125,000 in 1997,
$1,090,000 in 1998, $1,215,000 in 1999, $1,225,000 in 2000, and $17,600,000
thereafter.

The Partnership also leases certain rights-of-way and land under agreements that
can be canceled at any time should they not be required for operations. The
annual payments associated with these leases aggregated approximately $5 million
in 1993, however a substantial portion of this amount became subject to
renegotiation effective January 1, 1994 and, to date, the Partnership and the
lessor have been unable to reach an agreement on the base annual rental payments
for the next ten-year period. In a judicial reference proceeding in this matter,
the lessor has asserted that the amount of the easement rent should be increased
from approximately $3.7 million per year to $18.5 million per year, subject to
annual inflation adjustments. The Partnership has accrued for an increase in the
annual rental effective January 1, 1994 and does not believe that the evidence
provided by the lessor to date supports an annual rental in excess of the
amounts accrued; however, it is not presently possible to predict with certainty
the annual right-of-way rentals that will ultimately be payable. Rental expense
recorded for all operating leases was $8,850,000 in 1995, $8,335,000 in 1994 and
$7,130,000 in 1993.

                                     F-11
<PAGE>
 
NOTE 5 - RELATED PARTY TRANSACTIONS
-----------------------------------

The Partnership has no employees and is managed by the General Partner. Under
certain partnership and management agreements, the General Partner and Santa Fe
or its subsidiaries are entitled to reimbursement of all direct and indirect
costs related to the business activities of the Partnership. These expenses,
which are included in field operating and general and administrative expenses in
the Partnership's statement of income, totaled $49.3 million, $44.2 million and
$43.0 million for the years 1995, 1994 and 1993, respectively, and include
compensation and benefits payable to officers and employees of the General
Partner, payroll taxes, corporate office building rentals, general and
administrative costs, tax information and reporting costs and legal and other
professional services fees.


NOTE 6 - PENSION AND POSTRETIREMENT PLANS
-----------------------------------------

The General Partner is included with certain other affiliates in the trusteed
non-contributory Santa Fe Pacific Retirement Plan (the "Plan") which fully
complies with ERISA requirements. The Plan covers substantially all officers and
employees of Santa Fe and its subsidiaries not covered by collective bargaining
agreements. Benefits payable under the Plan are based on years of service and
compensation during the sixty highest paid consecutive months of service during
the ten years immediately preceding retirement. Santa Fe's funding policy is to
contribute annually at a rate not less than the ERISA minimum, and not more than
the maximum amount deductible for income tax purposes. Since the General Partner
is included with certain other affiliates, detailed Plan information for the
General Partner is not available in all cases; however, as of September 30,
1995, the fair value of Plan assets allocated to employees associated with the
Partnership's operations was $51.7 million, and the actuarial present value of
projected Plan obligations, discounted at 7.5%, was $42.0 million. The expected
return on the market value of Plan assets was 9.75% and compensation levels were
assumed to increase at 4.0% per year. Primarily as a result of the excess of
Plan assets over liabilities, pension income of $470,000, $200,000 and $435,000
was recognized in 1995, 1994 and 1993, respectively.

As of June 1994, salaried employees who have rendered ten years of service after
attaining age 45 are eligible for both medical benefits and life insurance
coverage during retirement. Prior to June 1994, salaried employees who had
attained age 55 and who had rendered ten years of service were eligible. This
change in eligibility requirements resulted in a $3.1 million curtailment gain
in 1994 relating to employees who are no longer currently eligible for
postretirement benefits, and a negative plan amendment due to a reduction in the
accumulated postretirement benefit obligation related to remaining eligible
active employees. This curtailment gain is included in other income in the
Partnership's statement of income. The retiree medical plan is contributory and
provides benefits to retirees, their covered dependents and beneficiaries.
Retiree contributions are adjusted annually. The plan also contains fixed
deductibles, coinsurance and out-of-pocket limitations. The life insurance plan
is non-contributory and covers retirees only.

                                     F-12
<PAGE>
 
Net periodic postretirement benefit cost was $770,000, $1,500,000 and $1,557,000
in 1995, 1994 and 1993, respectively, and included the following components:

<TABLE>
<CAPTION>
                                         Medical Plan           Life Insurance Plan
                                   -------------------------    --------------------
(In thousands)                      1995     1994      1993     1995    1994    1993
                                   -----    ------    ------    ----    ----    ----
<S>                                <C>      <C>       <C>       <C>     <C>     <C>
Service cost.....................  $ 490    $  660    $  550    $ 25    $ 40    $ 35
Interest cost....................    710       970     1,065     205     240     215
Net amortization
 and deferral....................   (660)     (410)     (310)      -       -       -
                                   -----    ------    ------    ----    ----    ----
Net periodic postretirement
 benefit cost....................  $ 540    $1,220    $1,305    $230    $280    $250
                                   =====    ======    ======    ====    ====    ====
</TABLE>

The Partnership's policy is to fund benefits payable under the medical and life
insurance plans as they come due. The following table shows the reconciliation
of the plans' obligations, using a September 30 measurement date, to amounts
accrued at December 31, 1995 and 1994:

<TABLE>
<CAPTION>
                                                   Medical Plan     Life Insurance Plan
                                                ------------------ --------------------
(In thousands)                                    1995      1994      1995       1994
                                                -------    ------- ---------   --------
<S>                                             <C>        <C>     <C>         <C>
Accumulated postretirement
 benefit obligation:
  Retirees....................................  $ 4,325    $ 4,485    $2,330    $1,955
  Fully eligible active plan participants.....    1,040      1,015        30        25
  Other active plan participants..............    5,460      4,660       600       445
                                                -------    -------    ------    ------
                                                 10,825     10,160     2,960     2,425
Unrecognized prior service credit.............    3,750      4,240        -         -
Unrecognized net gain (loss)..................      675        610      (680)     (230)
                                                -------    -------    ------    ------
Accrued postretirement liability..............  $15,250    $15,010    $2,280    $2,195
                                                =======    =======    ======    ======
</TABLE>

The unrecognized prior service credit will be amortized straight-line over the 
average future service to full eligibility of the active population. For 1996, 
the assumed health care cost trend rate for managed care medical costs is 11% 
and is assumed to decrease gradually to 5% by 2006 and remain constant
thereafter. For medical costs not in managed care, the assumed health care cost
trend is 13% in 1996 and is assumed to decrease gradually to 5% by 2006 and
remain constant thereafter. Increasing the assumed health care cost trend rates
by one percentage point in each year would increase the accumulated
postretirement benefit obligation for the medical plan by $1.3 million and the
combined service and interest components of net periodic postretirement benefit
cost recognized in 1995 by $200,000. The weighted-average discount rate assumed
in determining the accumulated postretirement benefit obligation was 7.5% in
1995 and 8.5% in 1994. The assumed weighted-average salary increase was 4% in
both 1995 and 1994.

                                     F-13
<PAGE>
 
NOTE 7 - PARTNERS' CAPITAL AND CASH DISTRIBUTIONS
-------------------------------------------------

Changes in partners' capital were as follows:
<TABLE>
<CAPTION>
                                                       General    Limited
(In thousands)                                         Partner    Partners     Total
                                                       -------    --------    --------
<S>                                                    <C>        <C>         <C>
Partner's capital at December 31, 1992...............   $1,486    $277,524    $279,010
1993 net income......................................      882      40,734      41,616
1993 cash distributions..............................   (1,160)    (53,615)    (54,775)
                                                        ------    --------    --------
Partners' capital at December 31, 1993...............    1,208     264,643     265,851
1994 net income......................................    1,629      75,256      76,885
1994 cash distributions..............................   (1,161)    (53,614)    (54,775)
                                                        ------    --------    --------
Partners' capital at December 31, 1994...............    1,676     286,285     287,961
1995 net income......................................    1,346      39,021      40,367
1995 cash distributions..............................   (1,776)    (56,487)    (58,263)
                                                        ------    --------    --------
Partners' capital at December 31, 1995...............   $1,246    $268,819    $270,065
                                                        ======    ========     ========
</TABLE>

The Partnership makes quarterly cash distributions of substantially all of its
available cash, generally defined as consolidated cash receipts less
consolidated cash expenditures and such retentions for working capital,
anticipated capital expenditures and contingencies as the General Partner deems
appropriate or as are required by the terms of the Notes. Distributions are made
98% to the common unitholders and 2% to the General Partner, subject to the
payment of incentive distributions to the General Partner which increase as
quarterly distributions to unitholders exceed certain specified target levels.
The incremental incentive distributions payable to the General Partner are 8%,
18% and 28% of all quarterly distributions of available cash that exceed,
respectively, $0.60, $0.65 and $0.70 per unit. Such incentive distributions
aggregated $2,351,000 in 1995 and $1,202,000 in 1994 and 1993.

Cash distributions declared aggregated $3.00 per unit in 1995, reflecting an
increase from $0.70 to $0.75 per unit in the first quarter, and $2.80 per unit
in 1994 and 1993. In January 1996, the Partnership announced a fourth quarter
1995 distribution of $0.75 per unit, payable in February 1996.

                                     F-14
<PAGE>
 
Note 8 - SUMMARIZED QUARTERLY OPERATING RESULTS
-----------------------------------------------
         AND COMMON UNIT INFORMATION (UNAUDITED)
         --------------------------------------
Quarterly results of operations are summarized below:

<TABLE>
<CAPTION>

                                   First       Second     Third      Fourth
(In thousands, except per unit    Quarter      Quarter    Quarter    Quarter
 amounts)                          -------      -------    -------    -------
<S>                               <C>          <C>        <C>       <C>
1995
  Net revenues..................  $54,200      $60,554    $60,795    $58,128
  Operating income..............   23,633       21,267     26,978      4,103
  Net income (loss).............   14,642       12,325     17,677     (4,277)

  Income (loss) per unit........  $  0.74      $  0.62    $  0.89   ($  0.21)

1994
  Net revenues..................  $52,522      $58,162    $59,446    $57,936
  Operating income..............   23,456       30,084     29,942     27,565
  Net income....................   14,075       23,672     20,692     18,446

  Income per unit...............  $  0.72      $  1.21    $  1.06    $  0.94
</TABLE>

Note: 1995 operating results included provisions for environmental and
litigation costs of $9.0 million in the second quarter and $25.0 million in the
fourth quarter.

Santa Fe Pacific Pipeline Partners, L.P. common units are traded on the New York
Stock Exchange, under the symbol SFL. The quarterly price range per unit and
cash distributions declared per unit for 1995 and 1994 are summarized below:

<TABLE>
<CAPTION>

                                        First       Second     Third      Fourth
                                       Quarter      Quarter    Quarter    Quarter
                                       -------      -------    -------    -------
<S>                                    <C>          <C>        <C>       <C>
1995
  High unit price.....................  36-7/8       37-7/8     37         37-3/8
  Low unit price......................  33-1/8       30-1/2     34-3/8     34-1/4

  Cash distributions declared......... $  0.75      $  0.75    $  0.75    $  0.75

1994
  High unit price.....................  40           37-7/8     36-7/8     34
  Low unit price......................  34-5/8       31-1/2     32-3/8     30

  Cash distributions declared......... $  0.70      $  0.70    $  0.70    $ 0.70
</TABLE>

As of January 31, 1996, there were approximately 18,000 unitholders.

                                     F-15