United States Securities and Exchange Commission
                             Washington, D.C. 20549

                              FORM 10-K

               ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                    THE SECURITIES EXCHANGE ACT OF 1934
               
                    For the Fiscal Year Ended June 30, 1998
                       Commission file Number 1-12499
                    
                       CORNERSTONE PROPANE PARTNERS, L.P.
            (Exact Name of Registrant as Specified in Its Charter)

  Delaware                                               77-0439862

 -----------                                           --------------
(State or other jurisdiction of          (IRS Employer Identification No.)
Incorporation or Organization)

432 Westridge Drive, Watsonville, California                  95076
-------------------------------------------------         ---------------
(Address of Principal Executive Offices)                     (Zip Code)

   Registrant's Telephone Number, Including Area Code     (831) 724-1921

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

        Title of Each Class       Name of Each Exchange on which Registered
  ----------------------------   -------------------------------------------
           Common Units                   New York Stock Exchange

    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 the 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 13,283,980 common units held by nonaffiliates
of the Registrant as of the close of business on September 25, 1998, is:
$255,700,000.

Documents Incorporated by Reference
None

PART I

ITEM 1 . BUSINESS.

GENERAL

 Cornerstone Propane Partners, L.P., ('Cornerstone Partners') and its
subsidiary, Cornerstone Propane, L.P. (collectively 'Cornerstone' or 'the
Partnership'), were organized in October 1996 and November 1996, respectively,
as Delaware limited partnerships. Cornerstone Propane GP, Inc. (the 'Managing 
General Partner') and SYN Inc. (the 'Special General Partner' and, collectively
with the Managing General Partner, the 'General Partners') are the general
partners of Cornerstone Partners and the Operating Partnership.  The
General Partners own an aggregate 2% interest as general partners, and the
Unitholders (including the General Partners as holders of Subordinated
Units) own a 98% interest as limited partners, in Cornerstone Partners and
the Operating Partnership on a combined basis.  Cornerstone Partners, the
Operating Partnership and its corporate subsidiary are referred to
collectively herein as the 'Partnership.'

 The Partnership was formed in 1996 to acquire, own and operate the propane
businesses and assets of SYN, Inc. and its subsidiaries ('Synergy') and
Empire Energy Corporation and its subsidiaries ('Empire Energy') (formerly
subsidiaries of Northwestern Growth Corporation ('Northwestern Growth'))
and CGI Holdings, Inc. and its subsidiaries ('Coast').  Northwestern Growth
is a wholly owned subsidiary of Northwestern Corporation ('NOR'), a New York 
Stock Exchange-listed national consumer services  company.Northwestern Growth
was formed in 1994 to pursue and manage nonutility investments and development
activities for NOR, with a primary focus on growth opportunities in the energy,
energy equipment and energy services industries.  To capitalize on the growth
and consolidation opportunities in the propane distribution market, in August
1995, Northwestern Growth acquired the predecessor of Synergy, then the sixth
largest retail marketer of propane in the United States and, in October 1996,
it acquired Empire Energy, then the eighth largest retail marketer of propane
in the United States.  Immediately prior to the Partnership's initial public
offering ('IPO') of Common Units in December 1996, Northwestern Growth acquired
Coast, then the 18th largest retail marketer of propane in the United
States.  The Partnership commenced operation on December 17, 1996,
concurrently with the closing of the IPO, when substantially all of the
assets and liabilities of Synergy, Empire Energy and Coast were contributed
to the Operating Partnership.  Information in this Form 10-K related to the
pro forma year ended June 30, 1997, reflects a full year of activity for
the three predecessor companies, as if the Partnership had been in
operation on July 1, 1996.

 The Partnership believes that it is the fifth largest retail marketer of
propane in the United States in terms of volume, serving more than 380,000
residential, commercial, industrial and agricultural customers from 282
customer service centers in 27 states as of June 30, 1998.  The
Partnership's operations are concentrated in the east coast, south-central
and west coast regions of the United States.  For the year ended June 30,
1998, the Partnership had retail propane sales of approximately 235 million
gallons.

 The Partnership is principally engaged in (i) the retail distribution of
propane for residential, commercial, industrial, agricultural and other
retail uses, (ii) the wholesale marketing and distribution of propane,
natural gas liquids and crude oil to the retail propane industry, the
chemical and petrochemical industries and other commercial and agricultural
markets, (iii) the repair and maintenance of propane heating systems and
appliances and (iv) the sale of propane-related supplies, appliances and
other equipment.

 The retail propane business is a 'margin-based' business in which gross
profits depend on the excess of sales prices over propane supply costs.
Sales of propane to residential and commercial customers, which account for
the vast majority of the Partnership's revenue, have provided a relatively
stable source of revenue for the Partnership.  Based on fiscal 1998 retail
propane gallons sold, the customer base consisted of 54% residential, 57%
commercial and industrial and 20% agricultural and other customers.  Sales
to residential customers have generally provided higher gross margins than
other retail propane sales.  While commercial propane sales are generally
less profitable than residential retail sales, the Partnership has
traditionally relied on this customer base to provide a steady, noncyclical
source of revenues.  No single customer accounted for more than 1% of total
revenues.

 The Partnership's wholesale operations engage in the marketing of propane
to independent dealers, major interstate marketers and the chemical and
petrochemical industries. The Partnership participates to a lesser extent
in the marketing of other natural gas liquids, the processing and marketing
of natural gas and the gathering of crude oil. The Partnership either owns
or has contractual rights to use transshipment terminals, rail cars, long-
haul tanker trucks, pipelines and storage capacity. The Partnership
believes that its wholesale marketing and processing activities position it
to achieve product cost advantages and to avoid shortages during periods of
tight supply to an extent not generally available to other retail propane
distributors.

PRODUCT

 Propane, a by-product of natural gas processing and petroleum refining, is
a clean-burning energy source recognized for its transportability and ease
of use relative to alternative stand-alone energy sources.  The retail
propane business of the Partnership consists principally of transporting
propane to its retail distribution outlets and then to tanks located on its
customers' premises. Retail propane use falls into four broad categories:
(i) residential, (ii) industrial and commercial, (iii) agricultural and
(iv) other applications, including motor fuel sales.  Residential customers
use propane primarily for space and water heating.  Industrial customers
use propane primarily as fuel for forklifts and stationary engines, to fire
furnaces, as a cutting gas, in mining operations and in other process
applications.  Commercial customers, such as restaurants, motels, laundries
and commercial buildings, use propane in a variety of applications,
including cooking, heating and drying.  In the agricultural market, propane
is primarily used for tobacco curing, crop drying, poultry brooding and
weed control.  Other retail uses include motor fuel for cars and trucks,
outdoor cooking and other recreational purposes, propane resales and sales
to state and local governments.  In its wholesale operations, the
Partnership sells propane principally to large industrial customers and
other propane distributors.

 Propane is extracted from natural gas or oil wellhead gas at processing
plants or separated from crude oil during the refining process. Propane is
normally transported and stored in a liquid state under moderate pressure
or refrigeration for ease of handling in shipping and distribution. When
the pressure is released or the temperature is increased, it is usable as a
flammable gas. Propane is colorless and odorless; an odorant is added to
allow its detection. Like natural gas, propane is a clean burning fuel and
is considered an environmentally preferred energy source.

SOURCES OF SUPPLY

 The Partnership's propane supply is purchased from oil companies and
natural gas processors at numerous supply points located in the United
States and Canada. During the year ended June 30, 1998, virtually all
of the Partnership's propane purchases of its propane supply was purchased
pursuant to agreements with terms of less than one year, but the percentage
of contract purchases may vary from year to year as determined by the
Partnership. Supply contracts generally provide for pricing in accordance
with posted prices at the time of delivery or the current prices
established at major delivery points. Most of these agreements provide
maximum and minimum seasonal purchase guidelines. In addition, the
Partnership makes purchases on the spot market from time to time to take
advantage of favorable pricing. The Partnership receives its supply of
propane predominantly through railroad tank cars and common carrier
transport.

 Supplies of propane from the Partnership's sources historically have been
readily available. In the year ended June 30, 1998, Dynegy was the
Partnership's largest supplier providing approximately 9% of the
Partnership's total propane supply for its retail and wholesale operations
(excluding propane obtained from the Partnership's natural gas processing
operations).  The Partnership believes that if supplies from Dynegy were
interrupted, it would be able to secure adequate propane supplies from
other sources without a material disruption of its operations. No single
supplier provided more than 10% of the Partnership's domestic propane
supply in the year ended June 30, 1998.  Although no assurance can be given
that supplies of propane will be readily available in the future, the
Partnership expects a sufficient supply to continue to be available. The
Partnership has not experienced a shortage that has prevented it from
satisfying its customer's need and does not foresee any significant
shortage in the supply of propane.

 The Partnership will engage in hedging of product cost and supply through
common hedging practices.  These practices will be monitored and maintained
by management for the Partnership on a daily basis.  Hedging of product
cost and supply does not always result in increased margins.

 The market price of propane is subject to volatile changes as a result of
supply or other market conditions over which the Partnership will have no
control. Since it may not be possible to pass rapid increases in the
wholesale cost of propane on to customers immediately, such increases could
reduce the Partnership's gross profits. Consequently, the Partnership's
profitability will be sensitive to changes in wholesale propane prices. The
Partnership engages in hedging of product cost and supply through common
hedging practices. The Partnership also engages in the trading of propane,
natural gas, crude oil and other commodities in amounts that have not had
and are not expected to have a material effect on the Partnership's
financial condition or results of operations.

 The Partnership has from time to time leased space in storage facilities
to take advantage of supply purchasing opportunities as they have occurred,
and the Partnership believes that it will have adequate third party storage
to take advantage of such opportunities in the future. Access to storage
facilities will allow the Partnership, to the extent it may deem it
desirable, to buy and store large quantities of propane during periods of
low demand, which generally occur during the summer months, thereby helping
to ensure a more secure supply of propane during periods of intense demand
or price instability.

OPERATIONS

 The Partnership has organized its operations in a manner that the
Partnership believes enables it to provide excellent service to its
customers and to achieve maximum operating efficiencies.  The Partnership's
retail propane distribution business is organized into regions.  Each
region is supervised by a region manager.  Personnel located at
the retail service centers in the various regions are primarily responsible
for customer service and sales.

 A number of functions are centralized at the Partnership's corporate
headquarters in order to achieve certain operating efficiencies as well as
to enable the personnel located in the retail service centers to focus on
customer service and sales.  The corporate headquarters and the retail
service centers are linked via a computer system.  Each of the
Partnership's primary retail service centers is equipped with a computer
connected to the central management information system in the Partnership's
corporate headquarters.  This computer network system provides retail
company personnel with accurate and timely information on supply cost,
inventory and customer accounts. The Partnership makes centralized
purchases of propane through its wholesale division for resale to the
retail service centers enabling the Partnership to achieve certain
advantages, including price advantages, because of its status as a large
volume buyer.  The functions of cash management, accounting, taxes,
payroll, permits, licensing, asset control, employee benefits, human
resources, and strategic planning are also performed on a centralized
basis.

TRADEMARKS

 The Partnership utilizes a variety of trademarks, including 'Synergy Gas'
and its related design, which the Partnership owns, and 'Empire Gas' and
its related design, which the Partnership has the right to use, and trade
names, including 'Coast Gas.'  The Partnership generally expects to retain
the names and identities of acquired entities, which the Partnership
believes preserves the goodwill of the acquired businesses and promotes
continued local customer loyalty.  The Partnership regards its trademarks,
trade names and other proprietary rights as valuable assets and believes
that they have significant value in the marketing of its products.

SEASONALITY

 Because a substantial amount of propane is sold for heating purposes, the
severity of winter and resulting residential and commercial heating usage
have an important impact on the Partnership's earnings.  Approximately two-
thirds of the Partnership's retail propane sales usually occur during the
six-month heating season from October through March.  As a result of this
seasonality, the Partnership's sales and operating profits are concentrated
in its second and third fiscal quarters.  Cash flows from operations,
however, are greatest from November through April when customers pay for
propane purchased during the six-month peak season.  To the extent the
Managing General Partner deems appropriate, the Partnership may reserve
cash from these periods for distribution to Unitholders during periods with
lower cash flows from operations.  Sales and profits are subject to
variation from month to month and from year to year, depending on
temperature fluctuations.

COMPETITION

 Based upon information provided by the Energy Information Administration,
propane accounts for approximately three to four percent of household
energy consumption in the United States. Propane competes primarily with
natural gas, electricity and fuel oil as an energy source, principally on
the basis of price, availability and portability. Propane is more expensive
than natural gas on an equivalent BTU basis in locations served by natural
gas, but serves as a substitute for natural gas in rural and suburban areas
where natural gas is unavailable or portability of product is required.
Historically, the expansion of natural gas into traditional propane markets
has been inhibited by the capital costs required to expand pipeline and
retail distribution systems. Although the extension of natural gas
pipelines tends to displace propane distribution in areas affected, the
Partnership believes that new opportunities for propane sales arise as more
geographically remote neighborhoods are developed. Propane is generally
less expensive to use than electricity for space heating, water heating,
clothes drying and cooking. Although propane is similar to fuel oil in
certain applications and market demand, propane and fuel oil compete to a
lesser extent primarily because of the cost of converting from one to the
other.

 In addition to competing with alternative energy sources, the Partnership
competes with other companies engaged in the retail propane distribution
business. Competition in the propane industry is highly fragmented and
generally occurs on a local basis with other large full-service multi-state
propane marketers, thousands of smaller local independent marketers and
farm cooperatives. Based on industry publications, the Partnership believes
that the domestic retail market for propane is approximately 9.2 billion
gallons annually, that the 10 largest retailers, including the Partnership,
account for approximately 33% of the total retail sales of propane in the
United States, and that no single marketer has a greater than 10% share of
the total retail market in the United States. Most of the Partnership's
customer service centers compete with five or more marketers or
distributors. Each customer service center operates in its own competitive
environment, because retail marketers tend to locate in close proximity to
customers. The Partnership's customer service centers generally have an
effective marketing radius of approximately 25 to 50 miles, although in
certain rural areas the marketing radius may be extended by a satellite
storage location.

 The ability to compete effectively further depends on the reliability of
service, responsiveness to customers and the ability to maintain
competitive prices. The Partnership also believes that its service
capabilities and customer responsiveness differentiate it from many of
these smaller competitors. The Partnership's employees are on call 24 hours
a day and seven days a week for emergency repairs and deliveries.

 The wholesale liquified petroleum gas (LPG) business, which includes propane,
is highly competitive. For the year ended June 30, 1998, the Partnership's
wholesale LPG operations accounted for 68% of total revenue but less than
13% of the gross profit. The Partnership believes that its wholesale
business provides it with a national presence and a reasonably secure,
efficient supply base, and positions it well for expansion through
acquisitions or start-up operations in new markets.

RISKS OF BUSINESS

 The Partnership's propane operations are subject to all the operating
hazards and risks normally incident to handling, storing and transporting
combustible liquids, such as the risk of personal injury and property
damages caused by accident or fire.

 The Partnership's comprehensive general and excess liability policy
provides coverage for losses of up to $99.0 million with a $50,000 self-insured
retention.

REGULATION

 The Partnership's operations are subject to various federal, state and
local laws governing the transportation, storage and distribution of
propane, occupational health and safety, and other matters.  All states in
which the Partnership operates have adopted fire safety codes that regulate
the storage and distribution of propane.  In some states these laws are
administered by state agencies, and in others they are administered on a
municipal level.  Certain municipalities prohibit the below ground
installation of propane furnaces and appliances, and certain states are
considering the adoption of similar regulations.  The Partnership cannot
predict the extent to which any such regulations might affect the
Partnership, but does not believe that any such effect would be material.
It is not anticipated that the Partnership will be required to expend
material amounts by reason of environmental and safety laws and
regulations, but inasmuch as such laws and regulations are constantly being
changed, the Partnership is unable to predict the ultimate cost to the
Partnership of complying with environmental and safety laws and
regulations.

 The Partnership currently meets and exceeds federal regulations requiring
that all persons employed in the handling of propane gas be trained in
proper handling and operating procedures.  All employees have participated
or will participate within 90 days of their employment date, in hazardous
materials training.  The Partnership has established ongoing training
programs in all phases of product knowledge and safety including
participation in the National Propane Gas Association's ('NPGA') Certified
Employee Training Program.

PERSONNEL

 As of September 25, 1998, the Partnership had 2000 full time employees, 
of whom 106 were general and administrative and 1894 were operational 
employees.  Fewer than 100 of the Partnership's employees were represented
by labor unions.  The Partnership believes that its relations with its
employees are satisfactory. The Partnership generally hires seasonal workers to
meet peak winter demand.

BUSINESS STRATEGY

 The principal elements of the Partnership's business strategy are to (i)
extend and refine its existing service orientation, (ii) continue to pursue
balanced growth through small and large acquisitions, internal growth at
its existing customer service centers and start-ups of new customer service
centers, (iii) enhance the profitability of its existing operations by
integrating the operations of its predecessors, implementing
entrepreneurially oriented local manager incentive programs, where
appropriate, and continuing to centralize administrative systems and (iv)
capitalize on the Partnership's national wholesale supply and logistics
business.

ITEM 2. PROPERTIES

CORPORATE HEADQUARTERS

 The principal executive offices of the Partnership are located at 432
Westridge Drive, Watsonville, California  95076.  These offices are leased
through 2002. 

 The accounting and the day-to-day operations are centralized in Lebanon, 
Missouri.  These offices are leased through 2006.

RETAIL/CUSTOMER SERVICE CENTERS

 The Partnership leases retail service centers and administrative office
space under noncancelable operating leases expiring at various times
through 2008.  These leases generally contain renewal options and require
the Partnership to pay all executory costs (property taxes, maintenance and
insurance).  As of June 30, 1998, the Partnership operated 282 customer
service centers.

 As of June 30, 1998, the Partnership operated bulk storage facilities with
total propane storage capacity of approximately 15 million gallons, of
which 3 million gallons is owned by the Partnership and 12 million gallons
are leased.  The Partnership does not own, operate or lease any underground
propane storage facilities (excluding customer and local distribution
tanks) or pipeline transportation assets (excluding local delivery
systems).

DISTRIBUTION

 The Partnership purchases propane at refineries, gas processing plants,
underground storage facilities, and pipeline terminals and transports the
propane by railroad tank cars and tank trailer trucks to the Partnership's
retail service centers, each of which has gas bulk storage capacity ranging
from 30,000 to 120,000 gallons.  The Partnership is a shipper on all major
interstate LPG pipeline systems.  The retail service centers have an
aggregate storage capacity of approximately 17 million gallons of propane,
and each service center has equipment for transferring the gas into and
from the bulk storage tanks.  The Partnership owns and operates 43 over-the-
road tractors and 47 transport trailers to deliver propane and consumer
tanks to its retail service centers and also relies on common carriers to
deliver propane to its retail service centers.

 Deliveries to customers are made by means of approximately 760 bobtail
trucks and approximately 900 other delivery and service vehicles owned by
the Partnership.  Propane is stored by the customers on their premises in
stationary steel tanks generally ranging in capacity from 25 to 1,000
gallons, with large users having tanks with a capacity of up to 30,000
gallons.  Most of the propane storage tanks used by the Partnership's
residential and commercial customers are owned by the Partnership and
leased, rented or loaned to customers.  The Partnership owned approximately
400,000 of these customer storage tanks.

ITEM 3. LEGAL PROCEEDINGS.

 A number of personal injury, property damage and products liability suits
are pending or threatened against the Partnership.  In general, these
lawsuits have arisen in the ordinary course of the Partnership's business
and involve claims for actual damages, and in some cases punitive damages,
arising from the alleged negligence of the Partnership or as a result of
product defects or similar matters.  Of the pending or threatened matters,
a number involve property damage, and several involve serious personal
injuries or deaths and the claims made are for relatively large amounts.
Although any litigation is inherently uncertain, based on past experience,
the information currently available to it and the availability of insurance
coverage, the Partnership does not believe that these pending or threatened
litigation matters will have a material adverse effect on its results of
operations or its financial condition.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF UNITHOLDERS.

 No matters were submitted to a vote of unit holders by the Partnership
during the fourth quarter of the fiscal year covered by this report.

PART II

Item 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED UNITHOLDER
MATTERS.

 Cornerstone Propane Partners, L.P. Common Units are traded on the New York
Stock Exchange under the symbol CNO.  The high and low trading prices for
the following quarters were:

Fiscal Year 1998                              
----------------
                                              
Quarter ended September 30                    23 7/8    21 1/16
Quarter ended December 31                     23 15/16  22 1/4
Quarter ended March 31                        23 3/8    20 1/2
Quarter ended June 30                         22 15/16  21
                                              
                                             High     Low
                                           --------  --------
Fiscal Year 1997                              
                                              
Quarter ended March 31                      $22 3/8  $20 7/8
Quarter ended June 30                        22 1/8   19 3/4

 As of September 25, 1998, there were approximately 13,284,000 holders of
Common Units, including individual participants in security position
listings.

 There is no established public trading market for the Subordinated Units,
all of which are held by the Managing General Partner and the Special
General Partner.

 The Partnership will distribute to its partners, on a quarterly basis, all
of its Available Cash, which is generally all cash on hand at the end of a
quarter, as adjusted for reserves.  The Managing General Partner has broad
discretion in making cash disbursements and establishing reserves.  The
Partnership intends, to the extent there is sufficient Available Cash, to
distribute to each holder of Common Units at least $.54 per Common Unit per
quarter (the 'Minimum Quarterly Distribution') or $2.16 per Common Unit on
an annualized basis.

 To enhance the Partnership's ability to make the Minimum Quarterly
Distribution on the Common Units during the Subordination Period, which
will generally extend at least through December 31, 2001, each holder of
Common Units will be entitled to receive the Minimum Quarterly
Distribution, plus any arrearages thereon, before any distributions are
made on the outstanding subordinated limited partner interests of the
Partnership (the 'Subordinated Units').  Upon expiration of the
Subordination Period, all Subordinated Units will convert if full distribution
to Common Units has occurred for twelve consecutive quarters and will be
on a one-for-one basis and will thereafter participate pro rata with the
other Common Units in distributions of Available Cash.  

 For a further discussion of the Partnership's cash distribution policy,
refer to Notes 4 and 7 in the Partnership's Consolidated Financial Statements
included in Item 8 of this report.  For a discussion of certain
restrictions under the Partnership's loan agreements that limit the
Partnership's ability to pay cash distributions, refer to 'Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources - Financing and Sources of Liquidity'
included in Item 7 of this report.

ITEM 6. SELECTED FINANCIAL DATA.

CORNERSTONE 

 The following table presents selected consolidated operating and balance
sheet data of the Partnership as of June 30, 1998 and 1997, and for the year 
ended June 30, 1998, and the period from Commencement of Operations (December
17, 1996) to June 30, 1997.  The financial data of the Partnership was derived
from the Partnership's audited consolidated financial statements.  The
financial data set forth below should be read in conjunction with the 
Partnership's consolidated financial statements, together with the notes
thereto, included in Item 8 of this report.

CORNERSTONE PARTNERS

(In Thousands, Except Per Unit Data)



                                                          Period from
                                                          Inception
                                                          (December
                                                          17,
                                            Year Ended    1996) to
                                            June 30,      June 30,
                                            1998          1997
                                            ------------  ---------
                                            
Statement of Operations Data:                             
                                                          
 Revenues                                   $ 768,129     $ 389,630
 Cost of sales                                623,924       315,324
                                            ---------      --------
 Gross profit                                 144,205        74,306

 Operating, general and administrative 
         Expenses                              97,184        50,023
 Depreciation and amortization                 18,246         8,519
                                            ---------      --------
 Operating income                              28,775        15,764
                                                          
 Interest expense                              19,222         9,944
                                            ---------      --------
                                                          
 Income before provision for income taxes       9,553         5,820
                                                          
 Provision for income taxes                       127            64
                                             --------      --------
                                                          
 Net income                                 $   9,426     $   5,756
                                             ========      ========
                                                          
                                                 1998           1997
                                              ----------     ---------
Balance Sheet Data:                                       
                                                          
  (As of June 30)                                          
  Current assets                            $  53,221       $  50,461
  Total assets                                572,511         521,193
  Current liabilities                          51,595          40,942
  Long-term debt (including current          
     maturities)                              240,938         237,268
  Partners' capital                           279,594         243,929
                                                          
Operating Data:                                           
                                                          
 Capital expenditures(including acquisitions)$  30,096      $    3,754
 EBITDA   (a)                                   47,021          24,283
 Income per unit                                   .50             .34
 Retail propane gallons sold                   235,000         213,700


(a)  EBITDA consists of net income before depreciation, amortization,
  interest and income taxes.  EBITDA should not be considered as an
  alternative to net income (as an indicator of operating performance) or as
  an alternative to cash flow, and it is not a measure of performance or
  financial condition under generally accepted accounting principles, but it
  provides additional information for evaluating the Partnership's ability to
  distribute the Minimum Quarterly Distribution and to service and incur
  indebtedness.  Cash flows in accordance with generally accepted accounting
  principles consist of cash flows from operating, investing and financing
  activities; cash flows from operating activities reflect net income
  (including charges for interest and income taxes, which are not reflected
  in EBITDA), adjusted for noncash charges or income (which are reflected in
  EBITDA) and changes in operating assets and liabilities (which are not
  reflected in EBITDA).  Further, cash flows from investing and financing
  activities are not included in EBITDA.

SYNERGY

 The financial information set forth below is derived from the audited
financial statements of Synergy.  On August 15, 1995, Synergy Group 
Incorporated ('SGI'), the predecessor of Synergy, was acquired by Synergy.
The financial information below as of March 31, 1994 and 1995, is derived
from the audited financial statement of SGI.  The comparability of financial
matters is affected by the change in ownership of SGI and the concurrent sale 
of approximately 25% of SGI's operations to Empire Energy (which at that time
was not related to Synergy).  The Statement of Operations Data and the 
Operating Data for the four and one-half months ended August 14, 1995, 
represent information for the period from the end of the last fiscal year of
SGI until the date of the sale to Synergy, and are presented only to reflect
operations of Synergy for a complete five-year period.  The retail propane
gallons sold for all periods presented is derived from the accounting records
of Synergy and SGI and is unaudited.  The Selected Historical Financial and
Operating Data below should be read in conjunction with the consolidated 
financial statements of Synergy and SGI included in Item 8 of this report.
 
                  Synergy Group Incorporated             Syn Inc.
         ------------------------------------------  ---------------
                                                             
                                              Four    Ten    Five And         
                                              And     And
                                              One-    One-    One-Half
                                              Half    Half
                                              Months  Months  Months
                     Fiscal Year Ended        Ended   Ended   Ended
                         March 31,            August  June    December
                --------------------------     14,     30,     16,
                             1994      1995   1995    1996    1996
                             ----      ----   ----    ----    ----
                                       (In Thousands)            
STATEMENT OF         
OPERATIONS DATA:                                                    
  Revenues                $133,731  $123,562 $ 32,179 $ 96,062  $ 44,066
  Cost of product sold      63,498    59,909   15,387   46,187    23,322
  Gross profit              70,233    63,653   16,792   49,875    20,744
  Depreciation and                                         
     amortization            5,170     5,100     1,845   3,329     1,904
  Operating income (loss)    3,609    (2,291)   (6,660) 14,520     3,769
  Interest expense          13,126    11,086     3,223   5,584     3,311   
  Provision(benefit) for
     income Taxes             (400)      (84)       31   3,675       298
  Net income (loss)        (11,615)  (13,417)   (9,813)  5,261       160
                                          
BALANCE SHEET DATA                                        
 (END OF PERIOD)                                          
  Current assets          $ 31,149  $ 27,542  $ 21,501 $ 59,027 $ 21,271 
  Total assets             111,914   103,830    96,500  166,762  174,140 
  Current liabilities      161,360   109,685   119,546   34,850    9,139
  Total debt               122,626    92,717    89,541   79,524   84,585
  Redeemable preferred stock     -         -         -   55,312   55,312
  Stockholders'            
     equity (deficit)      (55,424)  (15,762)  (25,576)  (1,899)  (5,617)
OPERATING DATA:                                           
 EBITDA (a)               $  8,779  $  2,809  $ (4,815) $ 17,849 $ 5,673
 Capital expenditures        3,141     3,737       596     8,708   3,751
 Retail propane                                           
    gallons sold           137,937   126,205    27,282    92,621  39,468
                                                          

(a)  EBITDA consists of net income before depreciation, amortization,
  interest and income taxes.  EBITDA should not be considered as an
  alternative to net income (as an indicator of operating performance) or as
  an alternative to cash flow, and it is not a measure of performance or
  financial condition under generally accepted accounting principles, but it
  provides additional information for evaluating the Partnership's ability to
  distribute the Minimum Quarterly Distribution and to service and incur
  indebtedness.  Cash flows in accordance with generally accepted accounting
  principles consist of cash flows from operating, investing and financing
  activities; cash flows from operating activities reflect net income
  (including charges for interest and income taxes, which are not reflected
  in EBITDA), adjusted for noncash charges or income (which are reflected in
  EBITDA).  Further, cash flows from investing and financing activities are
  not included in EBITDA.


EMPIRE ENERGY

 The financial information set forth below is derived from the audited 
financial statements of Empire Energy.  Empire Energy was formed in June
1994 as a result of a tax-free split-off (the 'Split-Off') from Empire Gas
Corporation.  As discussed in Note 2 to Empire Energy's Consolidated Financial
Statements included in Item 8, on August 1, 1996, the principal shareholder of
Empire Energy and certain other shareholders sold their interests in Empire 
Energy to certain members of management (the 'Management Buy-Out').  On
October 7, 1996, Northwestern Growth purchased 100% of the Empire Energy
common stock.  The results of operations and other data for the five and 
one-half months ended December 16, 1996, are stated on a pro forma basis to
combine the one month ended prior to the Management Buy-Out, the two months
ended prior to the Northwestern Growth acquisition and the two and one-half
months beginning with the Northwestern Growth acquisition. The retail propane
gallons sold for all periods presented is derived from the accounting records
of Empire Energy and is unaudited.  The Selected Historical Financial and
Operating Data below should be read in conjunction with the consolidated
financial statements of Empire Energy included in Item 8 of this report.

                                         Empire Energy
                                        -----------------
                                                                 Five and
                                                                 One-Half
                                                                  Months
                                                                  Ended
                         Fiscal Year Ended June 30,            December 16,
                       ----------------------------       -----------------
                                   1994   1995     1996     1996
                                 ------  ------  ------   -------
                                          (In Thousands)  
STATEMENT OF OPERATIONS                                  
 DATA                                                    
  Revenues                       $60,216 $56,689 $ 98,821  $43,201 
  Cost of product sold            28,029  26,848   50,080   23,310
  Gross profit                    32,187  29,841   48,741   19,891
  Depreciation and amortization    4,652   4,322    5,875    2,929
  Operating income                 6,015   1,084    9,846    3,567
  Interest expense                   118      39    2,598    3,621
  Provision for income taxes       2,400     600    3,550       32
  Net income (loss)                3,497     445    3,698      (86)
BALANCE SHEET DATA:                                      
 (END OF PERIOD)                                         
  Current assets                  $9,292 $ 9,615  $ 16,046 $27,491
  Total assets                    64,734  69,075   107,102 183,046
  Current liabilities             2,697    4,277    12,126  11,210
  Long-term debt                    135    1,701    25,442 111,853
  Stockholders' equity           46,111   46,535    50,233  15,922
OPERATING DATA:                                          
 EBITDA (a)                      $10,667 $ 5,406  $ 15,721 $ 6,496
 Capital expenditures              4,058   8,365    39,164   2,823
 Retail propane gallons sold      67,286  62,630   104,036  40,847
                                                         

(a)  EBITDA consists of net income before depreciation, amortization,
  interest and income taxes.  EBITDA should not be considered as an
  alternative to net income (as an indicator of operating performance) or as
  an alternative to cash flow, and it is not a measure of performance or
  financial condition under generally accepted accounting principles, but it
  provides additional information for evaluating the Partnership's ability to
  distribute the Minimum Quarterly Distribution and to service and incur
  indebtedness.  Cash flows in accordance with generally accepted accounting
  principles consist of cash flows from operating, investing and financing
  activities; cash flows from operating activities reflect net income
  (including charges for interest and income taxes, which are not reflected
  in EBITDA), adjusted for noncash charges or income (which are reflected in
  EBITDA) and changes in operating assets and liabilities (which are not
  reflected in EBITDA).  Further, cash flows from investing and financing
  activities are not included in EBITDA.

COAST

 The financial information set forth below is derived from the audited 
financial statements of Coast.  The Selected Historical Financial and
Operating Data below should be read in conjunction with the consolidated 
financial statements of Coast included in Item 8 of this report.

                                              Coast
                                      --------------------------
                                                         Four and
                                                         One-Half
                                                          Months
                                                          Ended
                            Fiscal Year Ended July 31,  December 16,
                           --------------------------  -------------
                                  1994    1995     1996     1996
                                 ------  ------  ------  --------
                                         (In Thousands)  
STATEMENT OF OPERATIONS                                  
 DATA                                                    
  Revenues                      $242,986 $266,842  $684,354 $185,460
  Cost of product sold           214,632  234,538   351,213  173,155
  Gross profit                    28,354   32,304    33,141   12,305
  Depreciation and amortization    3,282    3,785     4,216    1,604
  Operating income                 3,843    4,535     4,044      122
  Interest expense                 4,029    5,120     5,470    2,238
  Benefit for income taxes           (28)    (202)     (473)    (748)
  Net loss (a)                      (158)    (889)     (953)  (1,368)

BALANCE SHEET DATA:                                      
 (END OF PERIOD)                                         
  Current assets                $ 29,150  $33,676  $ 35,297   $49,392
  Total assets                    93,559  101,545   106,179   119,066
  Current liabilities             31,178   27,605    37,849    48,254
  Long-term debt                  31,080   46,021    41,801    46,245
  Mandatorily reedemable                    
     securities                    8,874    7,781     8,559     8,675
  Stockholders' equity             7,661    7,853     6,098     4,614

OPERATING DATA:(unaudited)                                          
 EBITDA (b)                     $  7,125  $ 8,320  $  8,559   $ 1,726
 Capital expenditures (c)          4,451    5,581     6,060     1,503
 Retail propane gallons sold      30,918   36,569    34,888    13,380

(a)  Included in the net loss for the year ended July 31, 1995, is an
  extraordinary charge to income of $506,000 for the early retirement of
  debt, net of the income tax benefit.

(b)  EBITDA consists of net income before depreciation, amortization,
  interest and income taxes.  EBITDA should not be considered as an
  alternative to net income (as an indicator of operating performance) or as
  an alternative to cash flow, and it is not a measure of performance or
  financial condition under generally accepted accounting principles, but it
  provides additional information for evaluating the Partnership's ability to
  distribute the Minimum Quarterly Distribution and to service and incur
  indebtedness.  Cash flows in accordance with generally accepted accounting
  principles consist of cash flows from operating, investing and financing
  activities; cash flows from operating activities reflect net income
  (including charges for interest and income taxes, which are not reflected
  in EBITDA), adjusted for noncash charges or income (which are reflected in
  EBITDA) and changes in operating assets and liabilities (which are not
  reflected in EBITDA).  Further, cash flows from investing and financing
  activities are not included in EBITDA.

(c) Capital expenditures fall generally into these categories: (i) growth 
capital expenditures, which include expenditures fot the purchase of new 
propane tanks and other equipment to facilitate expansion of the retail 
customer base, (ii) maintenance capital expenditures, which include
expenditures for repair and replacement of proprty, plant and equipment, and
(iii) acquisition capital expenditures.

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

 The following discussion of the historical financial condition and results
of operations for Cornerstone Propane Partners, L.P. and its subsidiary,
Cornerstone Propane, L.P. (collectively 'Cornerstone' or the 'Partnership')
should be read in conjunction with the historical financial statements and
accompanying notes thereto included elsewhere in this report and the pro
forma financial information elsewhere herein.

GENERAL

 The Partnership is a Delaware limited partnership formed in October 1996
to own and operate the propane business and assets of SYN Inc. and its
subsidiaries ('Synergy'), Empire Energy Corporation and its subsidiaries
('Empire'), and CGI Holdings, Inc. and its subsidiaries ('Coast').  The
Partnership believes it is the fifth largest retail marketer of propane in
the United States, serving more than 380,000 residential, commercial,
industrial and agricultural customers from 282 customer service centers in
27 states.

 Because a substantial portion of the Partnership's propane is used in the
weather-sensitive residential markets, the heating degree days in the
Partnership's areas of operations, particularly during the six-month peak-
heating season, have a significant effect on the financial performance of
the Partnership.  Heating degree days are a general indicator of weather
impacting propane usage and is calculated by taking the difference between
65 degrees and the average temperature of the day (if less than 65
degrees).  Warmer-than-normal temperatures will generally result in reduced
propane use.

 Gross profit margins are not only affected by weather patterns but also by
changes in customer mix.  For example, sales to residential customers
ordinarily generate higher margins than sales to other customer groups,
such as commercial or agricultural customers.  In addition, gross profit
margins vary by geographic region.  Accordingly, profit margins could vary
significantly from year to year in a period of identical sales volumes.

Analysis of Historical Results of Operations

 The following discussion compares the results of operations and other data
of Cornerstone for the year ended June 30, 1998, to the pro forma year
ended June 30, 1997.  The pro forma consolidated statement of income was
prepared to reflect the effects of the Partnership's December 17, 1996
Initial Public Offering ('IPO') as if it had been completed in its entirety
as of July 1, 1996.

                                                         Pro Forma
Year Ended June 30, thousands of dollars               1998      1997
                                                      ------    ------
Revenues                                            $768,129  $ 664,197
Cost of sales                                        623,924    534,892   
                                                     -------    -------
Gross profit                                         144,205    129,305
Operating, general and                       
administrative
 expenses                                             97,184     88,264
Depreciation and amortization                         18,246     15,073
                                                     -------   --------
                                             
Operating income                                      28,775     25,968
Interest expense                                      19,222     18,215
Provision for income taxes                               127        109
                                                     -------   --------
Net income                                          $  9,426   $  7,644
                                                     =======    =======

 During the fiscal year ended June 30, 1998, Cornerstone sold 235.0 million
retail propane gallons, an increase of 21.3 million gallons or 10.0% from
the 213.7 million retail propane gallons sold during the year ended June
30, 1997.  The increase in retail volume was primarily attributable to
acquisitions, which added 22.0 million gallons.  Excluding acquisitions,
retail volumes were flat, with increases in customer base being offset by
the warmer weather conditions attributable to the El Nino winter weather
pattern.  The heating season for 1998 was the second warmest on record in
the last 103 years, since weather records were maintained, a fact both
noted and felt by the Partnership.

 Revenues increased by $103.9 million or 15.6% to $768.1 million for the
year ended June 30, 1998, as compared to $664.2 million for the year ended
June 30, 1997.  This increase was attributable to an increase in wholesale
revenues of $124.6 million or 31.1% to $525.3 million for the year ended
June 30, 1998, as compared to $400.7 million for the year ended June 30,
1997, due primarily to higher volumes which were offset by lower prices.
Revenues for the retail business declined by $20.7 million or 7.9% to
$242.8 million for the year ended June 30, 1998, as compared to $263.5
million for the year ended June 30, 1997.  This decrease was the result of
lower selling prices, which was partially offset by higher gallons.

 Cost of sales increased by $89.0 million, or 16.6% to $623.9 million for
the year ended June 30, 1998, as compared to $534.9 million for the year
ended June 30, 1997.  The increase in cost of sales was due to higher
wholesale volumes.  As a percentage of revenues, cost of sales increased to
81.2% for the year ended June 30, 1998, as compared to 80.5% for the year
ended June 30, 1997.  The increase is due to higher growth in the wholesale
business which has a higher cost of sales to revenue ratio.

 Gross profit increased $14.9 million or 11.5% to $144.2 million for the
year ended June 30, 1998, as compared to $129.3 million for the year ended
June 30, 1997, primarily due to acquisitions.

 Operating, general and administrative expenses increased by $8.9 million
or 10.1% to $97.2 million for the year ended June 30, 1998, as compared to
$88.3 million for the year ended June 30, 1997.  This increase was related
primarily to acquisitions, with some additional costs required to support
the increased business growth.  As a percentage of revenues, operating,
general and administrative expenses decreased to 12.7% for the year ended
June 30, 1998, as compared to 13.3% for the year ended June 30, 1997.
Depreciation and amortization increased $3.1 million or 20.5% to $18.2
million for the year ended June 30, 1998, as compared to $15.1 million for
the year ended June 30, 1997.  This increase was primarily due to the
additional amortization and depreciation expense related to acquisitions.

 Operating income increased $2.8 million or 10.8% to $28.8 million for the
year ended June 30, 1998, as compared to $26.0 million for the year ended
June 30, 1997.  This increase was primarily the result of the increased
gross profit described above, partially offset by the increased operating,
general and administrative expenses also described above.

 Interest expense increased by $1.0 million or 5.5% to $19.2 million for
the year ended June 30, 1998, as compared to $18.2 million for the year
ended June 30, 1997.  The increase is due to higher borrowings in the
current period related to business acquisitions.

 Net income increased $1.8 million or 23.7% to $9.4 million for the year
ended June 30, 1998, as compared to $7.6 million for the year ended
June 30, 1997.  This increase reflects the increased operating income
discussed above, partially offset by increased depreciation, amortization
and interest costs.  Total earnings before interest, taxes, depreciation
and amortization (EBITDA) increased by $6.0 million or 14.6% to $47.0
million for the year ended June 30, 1998, as compared to $41.0 million for
the year ended June 30, 1997.  The increase in EBITDA reflects the
increased operating income discussed above.  As a percentage of revenues,
EBITDA was approximately 6% for both fiscal 1997 and 1998.  Retail
operations contributed approximately 32% of the revenue and 92% of the
EBITDA for fiscal year 1998.

EBITDA should not be considered as an alternative to net income (as an
indication of operating performance) or as an alternative to cash flow (as
a measure of liquidity or ability to service debt obligations) but provides
additional information to evaluate the Partnership's ability to distribute
the Minimum Quarterly Distribution.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows.  Cash provided by operating activities during 1998 totaled
$24.9 million.  Cash flow from operations included net income of $9.4
million and noncash charges of $18.2 million for the period, comprised of
depreciation and amortization expense.  The gain on sale of assets
decreased cash flow from operating activities by $0.7 million.  The impact
of working capital changes decreased cash flow by approximately $2.0
million.

 Cash used in investing activities for 1998 totaled $30.1 million, which
was principally used for acquisitions and purchases of property and
equipment.  Cash provided by financing activities was $6.2 million for
1998.  This amount reflects funds from a secondary offering of units and
net borrowings on the Working Capital Facility, partially offset by the
payment of partnership distributions.

 On December 17, 1996, Cornerstone Propane Partners, L.P. completed its
initial public offering (IPO), proceeds from which amounted to $191.8
million.  Concurrently with the IPO, Cornerstone Propane, L.P. (the
'Operating Partnership') issued $220.0 million of Senior Notes and borrowed
$12.8 million on its Working Capital Facility.  Also on the IPO date, the
Operating Partnership received cash of $22.4 million from the Predecessor
Companies.  Proceeds from the IPO, Senior Notes and the Working Capital
Facility were used to repay liabilities assumed by the Operating
Partnership ($337.6 million), to make distributions to the Partnership's
Special General Partner to redeem its preferred stock ($61.2 million), to
provide net worth to the Special General Partner ($15.5 million) and to pay
expenses of the partnership organization and formation ($13.7 million).

 In January 1998, the Partnership issued 1,960,000 additional units which
provided $40.8 million for general corporate purposes, which included
working capital, expansion of the Partnership's propane business by
internal growth and through acquisition, and repayment of indebtedness.

 In August 1998, the Partnership filed a Form S-3 covering the proposed
issuance of 2,500,000 Common Units for general corporate purposes, which
may include acquisitions, working capital, expansion of the Partnership's
propane business by internal growth and repayment of indebtedness.

Financing and Sources of Liquidity.  On December 17, 1996, the Operating
Partnership issued $220 million of Senior Notes with a fixed annual
interest rate of 7.53% pursuant to note purchase agreements with various
investors (collectively, the 'Note Agreement').  The Senior Notes mature on
December 30, 2010, and require semi-annual interest payments on December 30
and June 30.  The Note Agreement requires that the principal be paid in
equal annual installments of $27.5 million starting December 30, 2003. Also
on the same date, the Operating Partnership entered into a bank credit
agreement consisting of a working capital facility (the 'Working Capital
Facility') and an acquisition facility (the 'Acquisition Facility').  The
Working Capital Facility provides for revolving borrowings up to $50
million (including a $20 million sublimit for letters of credit) and
matures on December 31, 1999.  The Bank Credit Agreement provides that
there must be no amount outstanding under the Working Capital Facility
(excluding letters of credit) in excess of $10 million for at least 30
consecutive days during each fiscal year.  At June 30, 1998, $8.7 million
was outstanding under the Working Capital Facility.  Issued outstanding
letters of credit totaled $9.8 million at June 30, 1998.  The Acquisition
Facility provides the Operating Partnership with the ability to borrow up
to $75 million to finance propane business acquisitions.  The Acquisition
Facility operates as a revolving facility through December 31, 1999, at
which time any loans then outstanding may be converted to term loans and
will amortize quarterly for a period of four years thereafter.  No amounts
were outstanding at June 30, 1998.  Loans under the Bank Credit Agreement
bear interest at variable base or Eurodollar rates.  At June 30, 1998, the
applicable base and Eurodollar rates were 8.625% and 6.425%, respectively.
In addition, an annual fee is payable quarterly by the Operating
Partnership (whether or not borrowings occur) ranging from .125% to .325%
depending upon debt coverage ratios.

 The Operating Partnership's obligations under the Note and Bank Credit
Agreements are secured by a security interest in the Operating
Partnership's inventory, accounts receivable and propane storage tanks.
The Note and Bank Credit Agreements contain various terms and covenants
including financial covenants with respect to debt and interest coverage
and limitations, among others, on the ability of the Operating Partnership
and its subsidiaries to incur additional indebtedness, create liens, make
investments and loans, sell assets and enter into mergers, consolidations
or sales of all or substantially all assets.  The Operating Partnership was
in compliance with all terms and covenants at June 30, 1998.

YEAR 2000

 The Year 2000 issue is the result of computer programs using only the last
two digits to indicate the year.  If uncorrected, such computer programs
will not be able to interpret dates correctly beyond the year 1999 and, in
some cases prior to that time (as some computer experts believe), which
could cause computer system failures or other computer errors disrupting
business operations.  Recognizing the potentially severe consequences of
the failure to be Year 2000 compliant, the Partnership's management has
developed and implemented a company-wide program to identify and remedy the
Year 2000 issues.  A project team, consisting of the Partnership's Director
of Information Systems and the Partnership's key IS managers who supervise
operations at each of the Partnership's three main regional facilities in
California, Missouri and Texas, together with the Chief Information Officer
of Northwestern Corporation, the Partnership's parent corporation, was
created to manage the company's Year 2000 problems, enabling a smooth
transition into the Year 2000.  The project team reports directly to
executive management who have assigned a high priority to such efforts
within the Partnership.

 The scope of the Partnership's Year 2000 readiness program includes the
review and evaluation of (i) the Partnership's information technology (IT)
such as hardware and software utilized in the operation of the
Partnership's business; (ii) the Partnership's non-IT systems or embedded
technology such as micro-controllers contained in various equipment and
facilities; and (iii) the readiness of third parties, including customers,
suppliers and other key vendors to the company, and the electronic data
interchange (EDI) with those key third parties.  If needed modifications
and conversions are not made on a timely basis, the Year 2000 issue could
have a material adverse effect on the Partnership's operations.

 The Partnership is currently using internal and external resources to
identify, correct and test large quantities of lines of application
software code for systems that were developed internally.  Remediation of
these systems is expected to be completed by June 1999 except for the
Partnership's Retail Information System, consisting principally of its
billing and accounts receivable systems, which is already Year 2000
compliant.  Since January 1997, the Partnership has been converting its old
billing system installed at each customer service center to the new Retail
Information System.  Currently, approximately one-half of the Partnership's
customer service centers are running the new system, with the roll-out to
the balance of the centers schedule to be completed by October 1999.

 Software developed externally is being evaluated for Year 2000 compliance
and will be upgraded or replaced.  In the case of the Partnership's
existing NT-platform-based financial systems and oil and gas applications,
it is anticipated that solutions will be acquired from third party vendors.
In addition, these systems are being evaluated for meeting current and
future business needs (which is an on-going process), and the Partnership
is using this process as an opportunity to upgrade and enhance its
information systems.  The Partnership anticipates completing such upgrades
and replacements as needed by March 1999.

 In addition to internal Year 2000 remediation activities, the Partnership
is in contact with key suppliers, vendors and customers to assure no
interruption from activities with important third parties.  While none of
the Partnership's products are directly date sensitive, the supply and
transportation of propane gas products are dependent upon companies whose
own systems may need to be Year 2000 compliant.  If third parties do not
convert their systems in a timely manner and in a way compatible with the
Partnership's systems, the arrival of the Year 2000 could have an adverse
effect on the company operations.  The Partnership believes that its
actions with key suppliers, vendors and customers will minimize these
risks.  Furthermore, no single customer accounts for more than 10% of the
Partnership's consolidated gross profits, thus mitigating the adverse risk
to the Partnership's business if some but not all customers are not Year
2000 compliant.  Also, only a minimal number of transactions are conducted
through EDI, which reduces the risk.

 The Partnership's primary focus has been directed at resolving the Year
2000 problem.  While the Partnership expects its internal IT and non-IT
systems to be Year 2000 compliant by the dates specified, the Partnership
will be developing a contingency plan specifying what the Partnership will
do if it or important third parties are not Year 2000 compliant by the
required dates.  The Partnership anticipates that a majority of such
contingency plan will be based on manual  back-up systems, procedures and
practices.  The contingency plan is estimated to be completed by December
1998.

 Through June 1998, the Partnership estimates that incremental costs of
approximately $0.2 million have been incurred and expensed related to Year
2000 issues.  Since many systems are being modified to provide significant
enhanced capabilities, the Year 2000 expenses have not been nor are planned
to be specifically tracked.  The current estimated cost to complete
remediation is expected to be less than $1.0 million.  The Partnership
expects that a portion of these costs will be capitalized, as they are
principally related to adding new software applications and functionality.
Other costs will continue to be expensed as incurred.

 The Partnership's current estimates of the amount of time and costs
necessary to remediate and test its computer systems are based on the facts
and circumstances existing at this time.  The estimates were made using
assumptions of future events including the continued availability of
existing resources, Year 2000 modification plans, implementation success by
third-parties, and other factors.  New developments may occur that could
affect the Partnership's estimates of the amount of time and costs
necessary to modify and test its IT and non-IT systems for Year 2000
compliance.  These developments include, but are not limited to: (i) the
availability and cost of personnel trained in this area, (ii) the ability
to locate and correct all relevant computer codes and equipment and (iii)
the planning and Year 2000 compliance success that key suppliers, vendors
and customers attain.

FORWARD-LOOKING STATEMENTS

 The information presented herein may contain certain 'forward-looking
statements' within the meaning of the federal securities laws.  The
Partnership's actual future performance will be affected by the number of
factors, risks and uncertainties, including without limitation, weather
conditions, regulatory changes, competitive factors, the Partnership's
success in dealing with the Year 2000 issues and the operations of vendors,
suppliers and customers, many of which are beyond the Partnership's
control.  Future events and results may vary substantially from what the
Partnership currently foresees, and there can be no assurance that the
Partnership's actual results will not differ materially from its
expectations.  The Partnership undertakes no obligation to publicly release
any revision to these forward-looking statements to reflect events or
circumstances after the date of such statements or to reflect the
occurrence of anticipated or unanticipated events.

INFLATION AND ECONOMIC TRENDS

 Although its operations are affected by general economic trends, the
Partnership does not believe that inflation had a material effect on the
results of its operations during the past three years.

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

 The Consolidated Financial Statements of the Partnership and its
predecessors appear following Item 14. An index of the Consolidated
Financial Statements appears in Item 14(a)(1).

ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
      FINANCIAL DISCLOSURE.

 None

PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

 The Managing General Partner manages and operates the activities of the
Partnership.  The following table sets forth certain information with
respect to the executive officers and members of the Board of Directors of
the Managing General Partner. Executive officers and directors are elected
for one-year terms.

Name                     Age         Position with Managing General Partner
----------              -----        ---------------------------------------

Merle D. Lewis           50        Chairman of the Board of Directors
Richard R. Hylland       37        Vice Chairman of the  Board of Directors
Keith G. Baxter          49        President, Chief Executive Officer
                                   and Director
Charles J. Kittrell      58        Executive  Vice President, Chief
                                   Operating Officer and Secretary
Ronald J. Goedde         49        Executive Vice President, Chief
                                   Financial Officer and Treasurer
Vincent J. DiCosimo      40        Executive Vice President
Wiliam L. Woods          48        Vice President
Paul Christen            69        Director
Kurt Katz                65        Director
Daniel K. Newell         41        Director

 Each of the officers and directors has served since 1996, except Messrs.
Christen and Katz, who were elected directors in 1997.

 Section 16(a) Beneficial Ownership Reporting Compliance.

 Based solely upon a review of Forms 3, 4 and 5 and related representations
furnished to the Partnership during the most recent fiscal year, no person
who, at any time during the fiscal year, was a director, officer or
beneficial owner of more than ten percent of the Common Units failed to
file on a timely basis reports required by Section 16(a) of the Securities
Exchange Act of 1934 during the most recent fiscal year.

ITEM 11.  EXECUTIVE COMPENSATION.

 The following table provides compensation information from commencement of
operations through the year ended June 30, 1998, for the Chief Executive
Officer and for each of the four other most highly compensated executive
officers of the Managing General Partner whose total compensation exceeded
$100,000 for the most recent fiscal period.

SUMMARY COMPENSATION TABLE
          
                                                         Long-Term
                         Annual Compensation             Compensation
                        --------------------             ------------
                              Bonus                         on   
                        -------------------         Other   Restricted
                                 Acquisition Other  Annual   Unit    All Other
Name and           Year  Salary  Incentive   Bonus Compen   Awards Compensation
Principal                          (1)        (2) sation(3)  (4)     (5)
Position
                                                       
Keith G. Baxter,                                       
 Chief Executive   1998 $191,485  $590,814  $60,000 $135,000   -      $11,089 
 Officer           1997  108,333   364,670   25,000   67,500 2,800,000  3,683
Charles J.                                             
Kittrell,          1998  155,283   393,876   30,000   65,000,  -       10,125
 Chief Operating   1997   88,125   243,113   15,000   32,500 1,600,000  4,256 
Officer            
Ronald J. Goedde,                                      
 Chief Financial   1998  145,171   328,230   35,000   40,000   -        6,143  
Officer            1997   79,192   202,594   15,000   20,000 1,600,000  2,998
Vincent J. Di Cosimo
 Senior Vice       1998  159,933         0  245,000   25,000   -        5,003
President          1997   81.250         0  175,000   12,500  1,000,000 2,333 
William L. Woods   1998  130,496   187,560   40,000        0    300,000 3,179
Vice President     1997   62,292   115,766   50,000        0          0     0 


(1)  Reflects amounts awarded under the Acquisition Incentive Plan for Messrs,
  Baxter, Kittrell and Goedde,and Woods.  'See Incentive Plans'

(2)  Reflects (a) bonus paid under the Annual Operating Incentive Plan payable
  to Messrs, Baxter, Kittrell, Goedde and Woods; (b) the bonus payable to Mr. 
  Di Cosimo under the Coast Energy Group Bonus Plan; (c) reflects a one-time
  special consolidating bonus awarded to Messers, Baxter, Kittrell, Goedde 
  and Woods in 1997.  See 'Incentive Plans.'

(3)  Reflects the Management Fees payable to Messrs. Baxter, Kittrell,
  Goedde and Di Cosimo in connection with the acquisition of Empire Energy
  and Coast by Northwestern Growth.  See 'Incentive Plans.'

(4)  The total number of restricted Common Units and their aggregate market
  value as of June 30, 1998, were:  Mr. Baxter, 133,333 Common Units
  valued at $ 2,941,659; Mr. Kittrell, 76,190  Common Units valued at
  $ 1,680,942; Mr. Goedde, 76,190 Common Units valued at $ 1,680,942 and Mr. Di
  Cosimo, 47,619 Common Units valued at $ 1,050,594.  There were no
  payouts under the Restricted Unit Plan during the fiscal period ended
  June 30, 1998.

(5  The 'All Other Compensation' category reflects the Managing General
  Partner's matching contributions to its 401(k) Plan for each of Messrs,
  Baxter, Kittrell, Goede, Di Cosimo, and Woods and payments for life and
  disability insurance for Messrs, Baxter, Kittrell, Goedde and Di Cosimo.
  'See Employment Agreement'.

EMPLOYMENT AGREEMENTS

 The Managing General Partner has entered into employment agreements (the
'Employment Agreements') with each of Keith G. Baxter, Charles J. Kittrell,
Ronald J. Goedde, Vincent J. Di Cosimo and William W. Woods  (the
'Executives').

 Pursuant to the Employment Agreements, Messrs. Baxter, Kittrell, Goedde,
DiCosimo and Woods serve as President and Chief Executive Officer, Executive 
Vice President and Chief Operating Officer, Executive Vice President and Chief
Financial Officer, Senior Vice President, and Vice President respectively,
of the Managing General Partner. Each of the Employment Agreements has a term
of three years from the closing of the Transactions, unless sooner terminated 
as provided in the Employment Agreements. The Employment Agreements provide
for an annual base salary of $200,000, $160,000, $150,000, $150,000 and 
$125,000 for each of Messrs. Baxter, Kittrell, Goedde, Di Cosimo and Woods, 
respectively, subject to such increases as the Board of Directors of the 
Managing General Partner may authorize from time to time, plus a fee for
each of the Executives of approximately $135,000, $65,000, $40,000, $25,000,
and $0 respectively, per year for three years related to the acquisition of
Empire Energy and Coast by Northwestern Growth (the 'Management Fee'). In
addition, the Managing General Partner pays for a $725,000 life insurance
policy for Mr. Baxter and $410,000 life insurance policies for each of
Messrs. Kittrell, Goedde, Di Cosimo and Woods. Each of the Executives 
participate in the Annual Operating Performance Incentive Plan of the Managing
General Partner and Messrs, Baxter, Kittrell, Goedde and Woods participate in
the New Acquisition Incentive Plan of the Managing General Partner (together
with the Annual Operating Performance Incentive Plan, the 'Plans') as described
below.  The Executives are also entitled to participate in such other
benefit plans and programs as the Managing General Partner may provide for
its employees in general (the 'Other Benefit Plans').

 The Employment Agreements provide that in the event an Executive's
employment is terminated without 'cause' (as defined in the Employment
Agreements) or if an Executive terminates his employment due to a
'Fundamental Change' (as defined below), such Executive will be entitled to
receive a severance payment in an amount equal to his total compensation
for the remainder of the employment term under the Employment Agreement and
will receive benefits under the Other Benefit Plans for a period of twelve
months after termination. In the event of termination due to disability,
the Executive will be entitled to his base salary, his Management Fee and
benefits under the Plans and the Other Benefit Plans for twelve months. In
the event of termination due to death, benefits under the Other Benefit
Plans will be continued for the Executive's dependents for twelve months.
In the event the Executive's employment is terminated for 'cause,' the
Executive will receive accrued salary and benefits (including his
Management Fee and benefits under the Plans) up to the date of termination
and, if the Managing General Partner does not waive the Executive's
covenant not to compete, benefits under the Other Benefit Plans for 12
months.

 A Fundamental Change is defined in the Employment Agreements to have
occurred (i) if the Executive's duties, authority, responsibilities and/or
compensation is reduced without performance or market-related
justification; (ii) if the Executive's primary office is moved more than 50
miles from Watsonville, California (or, with respect to Mr. DiCosimo,
Houston, Texas) without his consent; (iii) if the Partnership disposes of
business and assets which reduce the annual EBITDA of the Partnership below
70% of the annual EBITDA level existing at the time employment commenced;
or (iv) if securities representing 10% of the voting power in elections of
directors of NOR become beneficially owned by any party or group or other
prescribed events occur constituting a change of control of NOR.

 In addition, each Employment Agreement contains non-competition and
confidentiality provisions.

INCENTIVE PLANS

 The Managing General Partner has adopted the Annual Operating Performance
Incentive Plan, which provides for the payment of annual incentive bonuses
to participants in the plan (who will be determined by the Board of
Directors of the Managing General Partner from time to time and who will
include the Executives) equal to a percentage of annual salary (plus in the
case of the Executives, his Management Fee) based on the Partnership's
performance compared to budgeted levels of net income and EBITDA. Such
bonuses will range from zero for performance at 10% below budget to 50% for
performance at budget. In addition, in the event EBITDA exceeds budgeted
amounts, there will be established a bonus pool equal to 10% of the excess
of EBITDA over budget, which will be divided among Messrs. Baxter, Kittrell,
Goedde and Woods and any other participants that the Board of Directors of the
Managing General Partner may determine. The period covered by the plan
began December 17, 1996, and ends on the fifth anniversary thereof.

 The Managing General Partner has an Acquisition Incentive Plan, which 
provides for bonuses to participants in the plan (who will be determined by 
the Board of Directors of the Managing General Partner from time to time and
who will include the Executives) for adding new businesses to the Partnership's
propane operations.  The bonuses will be an amount equal to 4% of the gross
acquisition purchase price, allocated among the participants in the plan based 
on their relative salaries. The transactions covered by the plan will include 
those occurring on or after December 17, 1997 through the fifth anniversary 
thereof. Awards under this program will be payable in cash 90 days after the
close of the particular acquisition transaction.

RESTRICTED UNIT PLAN

Long-Term Incentive Plan - Awards in Last Fiscal Year

 The following table sets forth the restricted unit grants made under the
Restricted Unit Plan to the named executive officers of the Partnership.  All
subordinated units were granted during the fiscal year ended June 30, 1997;
none granted during the fiscal year ended June 30, 1998.

                      Number of Shares,     Performance or Other
                      Units or Other        Period Until
Name                  Rights                Maturation
                                            or Payout
                                            
Keith G. Baxter       133,333   Common Units(1)  (3)
Charles J. Kittrell    76,190   Common Units(1)  (3)
Ronald J. Goedde       76,190   Common Units(1)  (3)
Vincent J. Di Cosimo   47,619   Common Units(1)  (3)
William L. Woods       13,370   Common Units(2)  (3)

(1)  Granted on December 17, 1996 upon consummation of the IPO.

(2)  Granted during Fiscal 1998.

(3)  Restricted units are subject to a bifurcated vesting procedure such
  that (a) 25% of a participant's restricted units will vest over time, with
  one-third vesting on the third, fifth and seventh anniversaries of the date
  of grant and (b) the remaining 75% of a participant's restricted units will
  vest automatically upon, and in the same proportions as, the conversion of
  the Subordinated Units to Common Units.  See Note 4 to the Partnership's
  Consolidated Financial Statements included in Item 8.  If a participant's
  employment is terminated without 'cause' (as defined in the Restricted Unit
  Plan) or a participant resigns with 'good reason' (as defined in the
  Restricted Unit Plan), the participant's rights to receive Common Units
  which vest over time will immediately vest.  In the event of a 'change of
  control' of the Partnership (as defined in the Restricted Unit Plan), all
  rights to receive Common Units pursuant to the Restricted Unit Plan will
  immediately vest.  Until rights to receive Common Units have vested, the
  Common Units to which they relate are not issued, and the participant is
  not entitled to any distributions or allocations of income or loss, and has
  no voting or other rights, with respect to such Common Units.

DIRECTOR COMPENSATION

 The Chairman of the Board of the Managing General Partner receives $50,000
annually and each of its other nonemployee directors receives $15,000
annually, plus $1,000 per Board meeting attended and $500 per committee
meeting attended. Committee Chairman receive $500 per quarter.

 In connection with the consummation of the IPO, the three initial
nonemployee directors of the Managing General Partner received rights with
respect to restricted units, as follows:  Mr. Lewis, 19,048 Common Units
valued at $400,000; Mr. Hylland, 14,286 Common Units valued at $300,000;
and Mr. Newell, 9,524 Common Units valued at $200,000.  In addition, under
the Restricted Unit Plan, upon his or her election to the Board of
Directors of the Managing General Partner, each nonemployee director
receives rights with respect to restricted units having an aggregate value
of $200,000.  The directors' restricted units vest in accordance with the
same procedure as is described in Note 3 to the Long-Term Incentive Plan -
Awards in Last Fiscal Year table above.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION IN COMPENSATION DECISIONS

 The Nominating and Compensation Committee of the Board of Directors of the
Managing General Partner is comprised of Messrs. Lewis, Christen and Katz.
None of these persons is an officer, employee or former employee of the
Managing General Partner, the Partnership or any of their subsidiaries.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
        OWNERSHIP OF PARTNERSHIP UNITS BY GENERAL PARTNERS AND DIRECTORS
        AND EXECUTIVE OFFICERS OF THE MANAGING GENERAL PARTNER

 The table below sets forth, as of June 30, 1998, the beneficial ownership
of Units by each person known to the Managing General Partner to be the
beneficial owner of more than 5% of any class of Units of the Partnership,
each director and named executive officer of the Managing General Partner,
as well as the directors and all of the executive officers of the Managing
General Partner as a group.

 Name and Address                      Amount and Nature   Percent of
 of Beneficial Owner         Class     of Beneficial Owner    Class
-----------------------     -------    ------------------  ---------
Managing General Partner(1) Subordinated 5,677,040            86.0%
Special General Partner(2)  Subordinated   920,579            14.0%
Merle Lewis                 Common           3,588  (3)(4)       *
Richard R. Hylland          Common             169  (3)(4)       *
Keith G. Baxter             Common          26,186  (3)          *
Charles J. Kittrell         Common          11,889  (3)          *
Ronald J. Goedde            Common          10,524  (3)          *
Vincent J. Di Cosimo        Common           3,500  (3)          *
William L. Woods            Common           3,180  (3)          *
Paul Christen               Common             192  (3)          *
Kurt Katz                   Common          25,192  (3)          *
Daniel K. Newell            Common          11,169  (3)(4)       *


All directors and executive officers (10 persons) as a common group 85,589
(3)

* Less than 1%

(1)  The business address of the Managing General Partner is 432 Westridge
  Drive, Watsonville, California 95076.

(2)  The business address of the Special General Partner is 33 Third Street
  S.E., Huron, South Dakota 57350.

(3)  Excludes Common Units awarded under the Restricted Unit Plan as
  follows:  Mr. Lewis - 19,408 Common Units; Mr. Hylland -14,286 Common Units;
  Mr. Baxter - 133,333 Common Units; Mr. Kittrell - 76,190 Common Units;
  Mr. Goedde - 76,190 Common Units; Mr. Di Cosimo - 47,619 Common Units; Mr.
  Woods - 13,370 Common Units;  Mr. Christen - 8,889 Common Units; Mr. Katz - 
  9,302 Common Units; Mr. Newell -9,524 Common Units; and all directors and
  officers as a group - 407,751 Common Units.

(4)  Excludes Subordinated Units held by the General Partners.  Messrs.
  Lewis, Hylland and Newell are executive officers of the parent of the
  General Partners.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

 As of June 30, 1998, the General Partners own the entire general partner
interest in the Partnership and all of the Subordinated Units, representing
an aggregate 32.6% limited partner interest and a 2% General Partner
interest in the Partnership. Through the Managing General Partner's
ability, as managing general partner, to manage and operate the Partnership
and the ownership of all of the outstanding Subordinated Units by the
General Partners (effectively giving the General Partners the ability to
veto certain actions of the Partnership), the General Partners have the
ability to control the management of the Partnership.

 The Managing General Partner is a wholly-owned subsidiary, and the Special
General Partner is a majority-owned subsidiary, of NOR.  Mr. Lewis serves
as the Chairman of the Board, and Messrs. Hylland and Newell are executive
officers of NOR.

 The Managing General Partner does not receive any management fee or other
compensation in connection with its management of the Partnership, but it
and its affiliates performing services for the Partnership are reimbursed
at cost for all expenses incurred on behalf of the Partnership, including
the cost of compensation properly allocable to the Partnership.  The
Partnership's Partnership Agreement provides that the Managing General
Partner will determine the expenses that are allocable to the Partnership
in any reasonable manner.

 In addition, the General Partners are entitled to receive distributions on
their general partner interest, certain incentive distributions and
distributions on their Subordinated Units.
PART IV

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

(a) (1)   Financial Statements

     Cornerstone Propane Partners, L.P.

     Report of Independent Public Accountants
     Consolidated Balance Sheets as of June 30, 1998 and 1997
     Consolidated Statements of Income for the year ended June 30, 1998,
       and the period ended June 30, 1997
     Consolidated Statements of Cash Flows for the year ended June 30,
       1998, and the period ended June 30, 1997
     Consolidated Statements of Partners' Capital for the year ended June
       30, 1998, and the period ended June 30, 1997

     Empire Energy Corporation

     Independent Accountants' Report
     Consolidated Statements of Operations for the periods ended December
       16, 1996, and the Year Ended June 30, 1996
     Consolidated Statements of Stockholders' Equity for the periods ended
       December 16, 1996, and the Year Ended June 30, 1996
     Consolidated Statements of Cash Flows for the periods ended December
       16, 1996, and the Year Ended June 30, 1996
     
     CGI Holdings, Inc.
     
     Report of Independent Accountants
     Consolidated Statements of Operations for the four and one-half month
       period ended December 16, 1996 and for the fiscal year ended July
       31, 1996
     Consolidated Statements of Stockholders' Equity for the four and one-
       half month period ended December 16, 1996 and for the fiscal year
       ended July 31, 1996
     Consolidated Statements of Cash Flows for the four and one-half month
       period ended December 16, 1996 and for the fiscal year ended July
       31, 1996
     
     SYN, Inc.

     Report of Independent Public Accountants
     Consolidated Statements of Operations for the period ended December
       16, 1996, and the period ended June 30, 1996
     Consolidated Statements of Stockholders' Equity for the period ended
       December 16, 1996, and the period ended June 30, 1996
     Consolidated Statements of Cash Flows for the period ended December
       16, 1996, and the period ended June 30, 1996

     Synergy Group Incorporated

     Independent Accountants Report
     Consolidated Statement of Operations for the period ended August 14,
       1995
     Consolidated Statement of Stockholders' Equity (Deficit) for the
       period ended August 14, 1995
     Consolidated Statement of Cash Flows for the period ended August 14,
         1995

(a) (2)   Financial Statement Schedules

 All financial statement schedules are omitted because the information is
not required, is not material or is otherwise included in the financial
statements or related notes thereto.

(a) (3)   Exhibits
 
21.1   List of Subsidiaries.
23.1   Consent of Arthur Andersen LLP
23.2   Consent of Baird, Kurtz and Dobson
23.3   Consent of PricewaterhouseCoopers LLP
27     Financial Data Schedule

(b)  Reports on Form 8-K
 
     None



SIGNATURES

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

                                   Cornerstone Propane Partners, L.P.

                                   By:  Cornerstone Propane GP, Inc.
                                        Managing General Partner


                                   By:   ---------------------------
                                              Keith G. Baxter

 Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

Signature             Capacity in which Signed              Date
---------             ------------------------             -----
                                                       
                                                       
--------------------  Chairman of the Board            September 28,  1998
      Merle Lewis     of Directors of the              
                      Managing General Partner         
                                                       
                      Vice Chairman of the Board       
--------------------  Of Directors of the              September 28, 1998
 Richard R. Hylland   Managing General Partner         
                                                       
                                                       
--------------------  President, Chief Executive       September 28, 1998
    Keith G. Baxter   Officer and Director             
                      of the Managing General Partner  
                      (principal executive officer)    
                                                       
                      Executive Vice President, Chief  
--------------------  Financial                        September 28, 1998
 Ronald J. Goedde     Officer and Treasurer of the     
                      Managing General Partner         
                      (principal financial/accounting  
                      officer)
                                                       
                                                       
--------------------  Director of the Managing         September 28, 1998
  Paul R. Christen    General Partner                  
                                                       
--------------------  Director of the                  September 28, 1998
    Kurt Katz         Managing General Partner         
                                                       
                                                       
--------------------  Director of the                  September 28, 1998
 Daniel K. Newell     Managing General Partner         


CORNERSTONE PROPANE PARTNERS, L.P. AND SUBSIDIARY
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To Cornerstone Propane Partners, L.P.

We have audited the accompanying consolidated balance sheets of Cornerstone
Propane Partners, L.P. (a Delaware Limited Partnership) and Subsidiary as
of June 30, 1998 and 1997, and the related consolidated statements of
income, partners' capital and cash flows for the year ended June 30, 1998,
and for the period from commencement of operations (December 17, 1996) to June
30, 1997.  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 in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement.  An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation.  We believe that our audit
provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Cornerstone Propane
Partners, L.P. and Subsidiary as of June 30, 1998 and 1997, and the results
of their operations and their cash flows for the year ended June 30, 1998
and for the period from commencement of operations (December 17, 1996) to June 
30, 1997, in conformity with generally accepted accounting principles.



                                               ARTHUR ANDERSEN LLP

Minneapolis, Minnesota,
July 30, 1998



Cornerstone Propane Partners, L.P. and Subsidiary
Consolidated Balance Sheets



June 30                                          1998        1997
---------------------------------------------------------------------------

                                              (Thousands of
                                              dollars, except unit data)
ASSETS                                                    
Current assets:                                           
 Cash and cash equivalents                    $   9,366     $ 8,406
 Trade receivables, net                          18,467      22,124
 Inventories                                     18,238      15,538
 Prepaid expenses and other current assets        7,150       4,393
                                               --------    --------
     Total current assets                        53,221      50,461
                                                          
Property, plant and equipment, net              275,288     247,943
Goodwill and other intangible assets, net       242,199     221,748
Other assets                                      1,803       1,041
                                               --------   ---------
     Total assets                             $ 572,511   $ 521,193
                                              =========   =========
                                                          
LIABILITIES AND PARTNERS' CAPITAL                         
Current liabilities:                                      
 Current portion of long-term debt            $   3,800   $   5,736
 Trade accounts payable                          18,460      22,534
 Accrued expenses                                29,335      12,672
                                               --------    --------  
     Total current liabilities                   51,595      40,942
                                                          
Long-term debt                                  237,138     231,532
Due to related party                              1,684         740
Other noncurrent liabilities                      2,500       4,050
                                               --------    --------
     Total liabilities                          292,917     277,264
                                               --------    --------
                                                          
Partners' capital:                                        
 Common unitholders (13,234,411 and                       
 10,512,805  units issued and outstanding)      185,803     146,851
 Subordinated unitholders (6,597,619 units       88,117      92,106
 General partners                                 5,674       4,972  
                                               --------    --------
     Total partners' capital                    279,594     243,929
                                               --------    --------
                                                          
     Total liabilities and partners' capital  $ 572,511   $ 521,193   
                                              =========   =========

The accompanying notes are intergal part of these consolidated balance sheets.


Cornerstone Propane Partners, L.P. and Subsidiary
Consolidated Statements of Income



                                                     From Commencement
                                                      of Operations on
                                        Year Ended    December 17, 1996
                                      June 30, 1998   to June 30, 1997
------------------------------------------------------------------------------

                                        (Thousands of dollars or
                                        units, except per unit data)
                                                       
Revenues                                $768,129        $ 389,630
                                                       
Cost of sales                            623,924          315,324
                                       ----------       ---------

Gross profit                             144,205           74,306
                                       ----------       ---------
                                                       
Expenses:                                               
 Operating, general and administrative    97,184           50,023
 Depreciation and amortization            18,246            8,519
                                        ---------       ---------
  Total expenses                         115,430           58,542
                                        ---------       ---------
                                                       
Operating income                          28,775           15,764
                                                       
Interest expense                          19,222            9,944
                                        ---------       ---------
                                                       
Income before provision for income         9,553            5,820
taxes
                                                       
Provision for income taxes                   127               64
                                          ----------    ---------
Net income                              $   9,426       $   5,756
                                          ==========    =========
                                                       
General Partners' interest in net       $    189        $     212
income                                    ==========    =========
                                                       
Limited Partners' interest in net       $   9,237       $   5,544
income                                    ==========    =========
                                                       
Net income per unit                     $     .50       $     0.34
                                          ==========     =========
                                                       
Weighted average number of units            18,429          16,531
outstanding                               ==========     =========


The accompanying notes are an integral part of these consolidated financial 
statements.


Cornerstone Propane Partners, L.P. and Subsidiary
Consolidated Statements of Cash Flows

 
                                                          From Commencement
                                                          of Operations on
                                             Year Ended    December 17, 1996
                                           June 30, 1998  to June 30, 1997
                                          ---------------  ----------------
                                                (Thousands of dollars)
CASH FLOWS FROM OPERATING ACTIVITIES:                    
 Net income                                   $ 9,426         $ 5,756
 Adjustments to reconcile net income to                  
 net cash from  operating activities:                                  
     Depreciation and amortization             18,246           8,519
     Gain on sale of assets                      (734)       
  Changes in assets and liabilities, net                 
  of effect of acquisitions and
  dispositions:
        Trade receivables                       4,768          37,100
        Inventories                            (4,206)         11,020
        Prepaid expenses and other        
        current assets                         (5,354)           (734)
        Trade accounts payable and              
        accrued expenses                        3,148         (39,299)   
        Other assets and liabilities             (434)        (11,211)
                                               -------        -------
        Net cash provided by operating      
           activities                          24,860          11,151
                                               -------        -------
CASH FLOWS FROM INVESTING ACTIVITIES:                    
 Expenditures for property, plant and
  equipment                                   (13,352)         (1,954)
 Acquisitions, net of cash received           (16,564)         (1,800)
                                              -------          -------
 Net cash used in investing activities        (30,096)         (3,754)
                                              -------          -------
CASH FLOWS FROM FINANCING ACTIVITIES:                    
 Net borrowings (payments) on Working        
 Capital Facility                               4,120          (8,200)
 Financing Costs                               (2,420)              _
 Net borrowings (payments) on purchase      
obligations                                    (4,609)             799    
 Advances from General Partners                   455               _
 Proceeds from issuance of common units               
(net of costs)                                 40,828               _
 General Partners' contribution                 1,185               _
 Partnership distributions                    (33,363)        (10,614)
                                              --------        --------
 Net cash provided by (used in)                       
   financing activities                         6,196         (18,015)
                                               -------         -------
PARTNERSHIP FORMATION TRANSACTIONS:                      
 Net proceeds from issuance of Common and                 
 Subordinated Units                                 _         191,804
 Borrowings on Working Capital Facility             _          12,800
 Issuance of Senior Notes                           _         220,000
 Cash transfers from predecessor companies          _          22,418
 Repayment of long-term debt and related interest   _        (337,631)
 Distribution to Special General Partner for                  
   the redemption of Preferred stock                _         (61,196)
 Distribution to Special General Partner            _         (15,500)
 Other fees and expenses                            _         (13,673)
                                               -------         -------
  Net cash provided by partnership
    formation transactions                          _           19,022
                                               _______         -------
                                                         
INCREASE IN CASH AND CASH EQUIVALENTS           960         8,404
CASH AND CASH EQUIVALENTS, beginning of  
period                                         8,406             2
                                             -------       -------
CASH AND CASH EQUIVALENTS, end of year       $ 9,366       $ 8,406
                                              =======      =======

The accompanying notes are an integral part of these consolidated financial
statements.


Cornerstone Propane Partners, L.P. and Subsidiary
Consolidated Statement of Partners' Capital

                                              Thousands of Dollars
                                       ---------------------------------------
                      Number of Units                                    Total
                      ---------------                       General  Partners'
                    Common Subordinated Common Subordinated Partners'  Capital
                    -------   -------  --------   ---------  -------   -------
Balance at                                                        
Commencement
of Operations on
December 17, 1996        _         _     $   _     $     _   $    _  $     _
                                                                  
Contributions of                                                  
net assets of
predecessor
 Companies and
 Issuance of                     
 Common Units     9,821,000   6,597,619   136,997    92,032       _    229,029
                                                                  
Issuance of                                                       
Common Units
 In connection with                                                   
 Acquisitions       691,805           _    14,784         _       _     14,784
                                                                  
Issuance of 2%                                                    
General Partners'                                             
 interest                 _           _         _         _    4,674     4,674
                                                                  
Additional                                                        
General Partners'
 contribution in                                                  
 connection with                                                  
 acquisitions            _           _         _         _       300       300
                                                                  
Quarterly                                           
 distributions            _           _    (6,244)   (4,156)     (214) (10,614)
                                                                  
Net income                _           _     1,314     4,230       212    5,756
                      -------    --------   -------   -------   ------  -------
                                                                  
Balance at June    10,512,805   6,597,619 $ 146,851 $ 92,106   $ 4,972 $243,929
                   ==========  ==========  ========  =======   =======  =======
Issuance of            
Common Units        1,960,000           _    40,828        _         _   40,828

Additional                                           
General Partners'    
 interest in                                                      
 connection with
 additional units            _          _         _        _        832     832 
                                                                  
Issuance of                                            
Common Units          
 in connection                                                   
 with acquisitions    761,606           _     17,589       _        _    17,589
                                                                  
Additional                                            
General Partners'  
 contribution in                                                  
 connection with                                                             
 acquisitions               _           _          _       _        353     353
                                                                         
Quarterly                                             
 distributions              _           _    (25,567)    (7,124)  (672) (33,363)
                                                                    
Net income                  _           _      6,102      3,135    189    9,426
                       --------     --------- -------    ------  -----   ------
Balance at June              
30, 1998              13,234,41     6,597,619 $185,803  $88,117 $5,674 $279,594
                      =========    ==========  =======  =======  ===== ======== 

The accompanying notes are an integral part of these consolidated financial 
statements.

CORNERSTONE PROPANE PARTNERS, L.P. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Tabular dollars in thousands)


1. PARTNERSHIP ORGANIZATION AND FORMATION

 Cornerstone Propane Partners, L.P. ('Cornerstone Partners') was formed on
October 7, 1996, as a Delaware limited partnership.  Cornerstone Partners
and its subsidiary Cornerstone Propane, L.P., a Delaware limited
partnership (the 'Operating Partnership'), were formed to acquire, own and
operate substantially all of the propane businesses and assets of SYN Inc.
and its subsidiaries ('Synergy'), Empire Energy Corporation and its
subsidiaries ('Empire') and CGI Holdings, Inc. and its subsidiaries
('Coast').  The principal predecessor entities, Synergy, Empire and Coast,
are collectively referred to herein as the 'Predecessor Companies.'  The
consolidated financial statements include the accounts of Cornerstone
Partners, the Operating Partnership and its corporate subsidiaries,
Cornerstone Sales & Service Corporation, a Delaware corporation and Flame,
Inc., an Arizona corporation, collectively referred to herein as the
'Partnership.'  The Operating Partnership is, and the Predecessor Companies
were, principally engaged in (a) the retail marketing and distribution of
propane for residential, commercial, industrial, agricultural and other
retail uses; (b) the wholesale marketing and distribution of propane and
natural gas liquids and crude oil to the retail propane industry, the
chemical and petrochemical industries and other commercial and agricultural
markets; (c) the repair and maintenance of propane heating systems and
appliances and; (d) the sale of propane-related supplies, appliances and
other equipment.  The Partnership entities commenced operations on December
17, 1996 pursuant to a Contribution, Conveyance and Assumption Agreement
dated as of the same date, wherein substantially all of the assets and
liabilities of the Predecessor Companies were contributed to the Operating
Partnership (the 'Conveyance').  As a result of the Conveyance, Cornerstone
Propane GP, Inc., a Delaware corporation and the managing general partner
of Cornerstone Partners and the Operating Partnership (the 'Managing
General Partner'), and SYN Inc., a Delaware corporation and the special
general partner of Cornerstone Partners and the Operating Partnership (the
'Special General Partner'), received all interests in the Operating
Partnership, and the Operating Partnership received substantially all
assets and assumed substantially all liabilities of the Predecessor
Companies.  Immediately after the Conveyance, and in accordance with the
Amended and Restated Agreement of Limited Partnership of Cornerstone
Partners (the 'Partnership Agreement'), the Managing General Partner and
the Special General Partner conveyed their limited partner interests in the
Operating Partnership to Cornerstone Partners in exchange for a 2% interest
in Cornerstone Partners and the Operating Partnership.
    
 Following these transactions, on December 17, 1996, Cornerstone Partners
completed its initial public offering through underwriters of 9,821,000
Common Units (the 'IPO') at a price to the public of $21.00 a unit.  The
net proceeds of approximately $191.8 million from the IPO, the proceeds
from the issuance of $220.0 million aggregate principal amount of the
Operating Partnership's 7.53% Senior Notes, and $12.8 million borrowings
under the Working Capital Facility (as described in Note 3) were used to
repay $337.6 million in liabilities assumed by the Operating Partnership
(including $141.8 million paid to affiliates of the Managing General
Partner) that were in large part incurred in connection with the
transactions entered into prior to the IPO.  A portion of the funds was
distributed to the Special General Partner to redeem its preferred stock
($61.2 million) to provide net worth to the Special General Partner ($15.5
million) and to pay expenses ($13.7 million).

 Partners' capital of limited partners immediately after the IPO consisted
of 9,821,000 Common Units and 6,597,619 Subordinated Units, representing an
aggregate 58.6% and 39.4% limited partner interest in Cornerstone Partners,
respectively.  Partners' capital of General Partners consists of a 2%
interest in the Partnership.

 During the Subordination Period (see Note 4), the Partnership may issue up
to 4,270,000 additional Parity Units (generally defined as Common Units and
all other Units having rights to distribution or in liquidation ranking on
a parity with the Common Units), excluding Common Units issued in
connection with (a) employee benefit plans and (b) the conversion of
Subordinated Units into Common Units, without the approval of a majority of
the Unitholders.  The Partnership may issue an unlimited number of
additional Parity Units without Unitholder approval if such issuance occurs
in connection with acquisitions, including, in certain circumstances, the
repayment of debt incurred in connection with an acquisition.  In addition,
under certain conditions the Partnership may issue without Unitholder
approval an unlimited number of parity securities for the repayment of up
to $75 million of long-term indebtedness of the Partnership.  After the
Subordination Period, the Managing General Partner may cause the
Partnership to issue an unlimited number of additional limited partner
interests and other equity securities of the Partnership for such
consideration and on such terms and conditions as shall be established by
the Managing General Partner at its sole discretion.

 The Partnership consummated several acquisitions during the period ended
June 30, 1997 for total consideration of approximately $20.5 million, of
which $14.8 million was in the form of Common Units with the remainder paid
primarily through the issuance of debt.  These acquisitions had no
significant effect on operating results for the period ended June 30, 1997.
For the fiscal year ended June 30, 1998, the Partnership consummated 11
acquisitions, with total consideration of approximately $38.9 million, of
which $17.6 million was in the form of Common Units and the remainder paid
primarily through the issuance of debt.  All acquisitions have been
accounted for using the purchase method of accounting.  For fiscal year
1998, acquisitions were a positive contributor to the earnings growth
compared to pro forma results for fiscal year 1997.

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations  The Partnership believes it is the fifth largest
retail marketer of propane in the United States in terms of volume, serving
more than 380,000 residential, commercial, industrial and agricultural
customers from 282 customer service centers in 27 states.  The Partnership
was formed to own and operate the propane business and assets of Synergy,
Empire and Coast.  The Partnership's operations are concentrated in the
east coast, south-central and west coast regions of the United States.

Basis of Presentation  The consolidated financial statements include the
accounts of the Partnership and its Subsidiary.  The acquisitions of the
Predecessor Companies has been accounted for as purchase business
combinations based on the fair value of the assets acquired.  Certain 1997
amounts in the accompanying financial statements have been reclassified to
conform to the 1998 presentation.  These reclassifications had no effect on
net income or partners' capital as previously reported.  All significant
intercompany transactions and accounts have been eliminated.

Fiscal Year  The Partnership's fiscal year is July 1 to June 30.  Because
the Partnership commenced operations upon completion of the IPO, the
accompanying consolidated statements of income, partners' capital and cash
flows for the period ended June 30, 1997 are for the period from
commencement of operations on December 17, 1996 to June 30, 1997.

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

Financial Instruments  The carrying amounts for cash and cash equivalents,
accounts receivable and accounts payable approximate fair value because of
the immediate or short-term maturity of these financial instruments.  Based
on the borrowing rates currently available to the Partnership for bank
loans with similar terms and average maturities, the fair value of long-
term debt was substantially the same as its carrying value at June 30, 1998
and 1997.

 The Partnership routinely uses commodity futures contracts to reduce the
risk of future price fluctuations for natural gas and liquified petroleum
gas (LPG) inventories and contracts.  Gains and losses on futures contracts
purchased as hedges are deferred and recognized in cost of sales as a
component of the product cost for the related hedged transaction.  In the
statement of cash flows, cash flows from qualifying hedges are classified
in the same category as the cash flows from the items being hedged.  Net
realized gains and losses for the current fiscal year and unrealized gains,
and losses on outstanding positions and open positions as of June 30, 1998 and
1997 were not material.

Revenue Recognition  Sales of natural gas, crude oil, natural gas liquids
and LPG and the related cost of product are recognized upon delivery of the
product.

Cash and Cash Equivalents  The Partnership considers all liquid investments
with original maturities of three months or less to be cash equivalents.
Cash equivalents consisted primarily of certificates of deposit.
Approximately $3.0 million of cash equivalents at June 30, 1998 and 1997
are restricted due to security requirements against letters of credit.

Trade Receivables, net  Trade receivables are stated net of allowance for
doubtful accounts of $2.8 million and $3.1 million at June 30, 1998 and
1997, respectively.

Inventories  Inventories are stated at the lower of cost or market.  The
cost of natural gas, crude oil, natural gas liquids and LPG is determined
using the first-in, first-out (FIFO) method.  The cost of gas distribution
parts, appliances and equipment is determined using the weighted average
method.  At June 30, the major components of inventory consisted of the
following:

                                      1998        1997
                                      ----        ----
                                              
             LPG and other       $   8,777    $  7,122
             Appliances              5,023       3,846
             Parts and fittings      4,438       4,570
                                 ---------    --------
                                 $  18,238    $ 15,538
                                 ==========  =========
                                              

Property, Plant and Equipment  Property, plant and equipment are stated at
cost of acquisition, primarily based upon estimates of fair value at the
date of the IPO.  Depreciation is computed using the straight-line method
over the estimated useful lives of the assets as follows:  buildings and
improvements, 25 to 33 years; LPG storage and rental tanks, 40 years; and
office furniture, equipment and tank installation costs, 5 to 10 years.
Leasehold improvements are amortized over the shorter of the estimated
useful life or the lease term.  When property, plant or equipment is
retired or otherwise disposed, the cost and related accumulated
depreciation is removed from the accounts, and the resulting gain or loss
is credited or charged to operations.  Maintenance and repairs are expensed
as incurred, while replacements and betterment's that extend estimated
useful lives are capitalized.  Property, plant and equipment at June 30
consisted of the following:

                                   1998          1997
                                   ----          ----
                                            
        Land                   $ 13,515     $  8,388
        Buildings and            
        improvements             14,351       11,256
        Storage and consumer    
        tanks                   211,104      206,014
        Other equipment          50,783       27,843
                              ---------     --------
                                289,753      253,501
        Accumulated              14,465        5,558
        depreciation          ---------     --------
                               $275,288     $247,943
                              =========     ========

Goodwill and Other Intangible Assets  Goodwill, the excess of acquisition
cost over the estimated fair market value of identifiable net assets of
acquired businesses, is being amortized on a straight-line basis over 40
years.  Noncompete agreements are amortized over the term of the applicable
agreements.  Financing costs are amortized over the term of the Senior
Notes.  Goodwill and other intangible assets at June 30 consisted of the
following:

                                   1998       1997
                                   ----       ----
                                           
        Goodwill               $232,356     $213,092
        Noncompete and other     10,731        4,398
        Financing costs           8,532        7,116
                               --------    --------- 
                                251,619      224,606
        Accumulated                
        amortization              9,420        2,858
                               --------     --------
                               $242,199     $221,748
                               ==========   ========

   It is the Partnership's policy to review long-lived assets including
   intangible assets for impairment whenever events or changes in
   circumstances indicate that the carrying amount of such assets may not
   be recoverable.  If such a review should indicate that the carrying
   amount of such assets is not recoverable, it is the Partnership's
   policy to reduce the carrying amount of such assets to fair value.

Income Taxes  Neither Cornerstone Partners nor the Operating Partnership is
directly subject to federal and state income taxes.  Instead, taxable
income or loss is allocated to the individual partners.  As a result, no
income tax expense has been reflected in the Partnership's consolidated
financial statements relating to the earnings of Cornerstone Partners or
the Operating Partnership.  The Operating Partnership has two subsidiaries
which operate in corporate form and are subject to federal and state income
taxes.  Accordingly, the Partnership's consolidated financial statements
reflect income tax expense related to the earnings of these corporate
subsidiaries.  Net earnings for financial statement purposes may differ
significantly from taxable income reportable to Unitholders as a result of
differences between the tax basis and financial reporting basis of assets
and liabilities and the taxable income allocation requirements under the
Partnership agreement and the Internal Revenue Code.

Net Income per Unit  Net income per Unit is computed by dividing net
income, after deducting the General Partners' 2% interest, by the weighted
average number of outstanding Common and Subordinated Units.  In accordance
with the Offering Prospectus, 100% of the income for the 14-day period
ended December 31, 1996, was allocated to the Subordinated Unitholders and
the General Partners.

Unit-Based Compensation  The Partnership accounts for unit-based
compensation as (a) deferred compensation for time-vesting units and (b)
contingent consideration for performance-vesting units.  Compensation for
the time-vesting units was accrued at the time of the IPO.  No time-vesting
units or performance-vesting units were vested as of June 30, 1998.
Neither time-vesting units or performance-vesting units were considered
Common Unit equivalents for the purpose of computing primary earnings per
unit.  In 1996, the Partnership adopted the provisions of the Statement of
Financial Accounting Standards (SFAS) No. 123, 'Accounting for Stock-Based
Compensation' for disclosure purposes only.  Pro forma disclosures of net
income and net income per unit if the fair value based method of accounting
for equity instruments under SFAS No. 123 had been applied would not change
net income and net income per unit.

Recently Issued Accounting Standards  SFAS No. 128, 'Earnings per Share,'
issued in February 1997 and effective for fiscal year ending after December
15, 1997, establishes and simplifies standards for computing and presenting
earnings per share.  Implementation of SFAS No. 128 did not have an impact
on the Partnership's computation or presentation of earnings per unit, as
the Partnership's common unit equivalents have had no effect on earnings
per unit amounts.

SFAS No. 130, 'Reporting Comprehensive Income,' issued in June 1997 and
effective for fiscal years beginning after December 15, 1997, established
standards for reporting and display of the total of net income and all
other nonowner changes in partners' capital, or comprehensive income,
either below net income in the statement of operations, in a separate
statement of comprehensive income or within the statement of partners'
capital.  The Partnership has had no significant items of other
comprehensive income.

SFAS No. 131, 'Disclosures about Segments of an Enterprise and Related
Information,' was issued in June 1997 and effective for fiscal years
beginning after December 15, 1997.  SFAS No. 131 introduces a new model for
segment reporting called the 'management approach' that is based on the way
that the chief operating decision maker organizes segments within a company
for making operating decisions and assessing performance.  The model is
used for disclosures of each segment.  The Partnership is currently
assessing its impact on disclosure requirements for the next fiscal year.

SFAS No. 133, 'Accounting for Derivative Instruments and Hedging
Activities,' was issued in June 1998.  SFAS No. 133 provides a
comprehensive standard for the recognition and measurement of derivatives
and hedging activities.  The standard requires all derivatives to be
recorded on the balance sheet at fair value and establishes special
accounting for three types of hedges.  The accounting treatment for each of
these three types of hedges is unique but results in including the
offsetting changes in fair values of cash flows of both the hedge and
hedged item in results of operations in the same period.  Changes in fair
value of derivatives that do not meet the criteria of one of the
aforementioned categories of hedges are included in the results of
operations.  SFAS No. 133 is effective for the Partnership's fiscal year
beginning July 1, 1999.  The Partnership is currently assessing its impact
on the Partnership's financial position and results of operations.

3. LONG-TERM DEBT

 Long-term debt at June 30 consisted of the following:

                                     1998          1997
                                     ----          ----
                                             
        Working Capital Facility  $ 8,720       $4,600
        Senior Notes              220,000      220,000
        Notes payable              12,218       12,668
                                  -------      -------
                                  240,938      237,268
        Less current maturities     3,800        5,736
                                  -------      -------
                                 $237,138     $231,532
                                 ========     ========

 Concurrently with the IPO, the Operating Partnership entered into a credit
agreement (the 'Bank Credit Agreement') which consists of a Working Capital
Facility and an Acquisition Facility.

 The Working Capital Facility provides for revolving borrowings up to $50.0
million (including a $20.0 million sublimit for letters of credit) and
matures on December 31, 1999.  The Bank Credit Agreement provides that
there must be less than $10.0 million outstanding under the Working Capital
Facility (excluding letters of credit) for at least 30 consecutive days
during each fiscal year.  Outstanding letters of credit totaled $9.8
million at June 30, 1998.

 The Acquisition Facility provides the Operating Partnership with the
ability to borrow up to $75.0 million to finance propane business
acquisitions.  The Acquisition Facility operates as a revolving facility
through December 31, 1999, at which time any loans then outstanding may be
converted to term loans and be amortized quarterly for a period of four
years thereafter.  No amounts were outstanding at June 30, 1998.

 The Operating Partnership's obligations under the Bank Credit Agreement
are secured, on an equal and ratable basis, with its obligations under the
Senior Note Agreement, by a first priority security interest in the
Operating Partnership's inventory, accounts receivable and propane storage
tanks.  Loans under the Bank Credit Agreement bear interest at variable
base or Eurodollar rates.  At June 30, 1998, the applicable base and
Eurodollar rates were 8.625% and 6.425%, respectively.  In addition, an
annual fee is payable quarterly by the Operating Partnership (whether or
not borrowings occur) ranging from .125% to .325% depending upon the
coverage ratio.  The weighted-average interest rates for the Bank Credit
Agreement for the periods ended June 30, 1998 and 1997 were 7.6% and 8.5%,
respectively.

 The Bank Credit Agreement contains various terms and covenants, including
financial covenants with respect to debt and interest coverage, and
limitations, among others, on the ability of the Operating Partnership and
its Subsidiaries to incur or maintain certain indebtedness or liens, make
investments and loans, sell assets, and enter into mergers, consolidations
or sales of all or substantially all of its assets.  The Operating
Partnership was in compliance with all terms and covenants at June 30,
1998.

 On the IPO date, the Operating Partnership issued $220.0 million of Senior
Notes with a fixed annual interest rate of 7.53% pursuant to note purchase
agreements with various investors (collectively, the 'Note Agreement').
The Senior Notes mature on December 30, 2010, and require semi-annual
interest payments each December 30 and June 30.  The Note Agreement
requires that the principal be paid in equal annual installments of $27.5
million starting December 30, 2003.

 Notes payable consist of mortgages, capital leases and noncompete
agreements.  At June 30, 1998, these notes payable carried interest rates
ranging from 7.5% to 10.0% and were due periodically through fiscal 2008.
Aggregate annual maturities of the long-term debt outstanding at June 30
are:

                  1999           $ 3,800
                  2000            11,352
                  2001             1,510
                  2002             1,043
                  2003            28,350
                  Thereafter     194,883
                                 -------
                                $240,938
                                ========

4. DISTRIBUTIONS OF AVAILABLE CASH

 The Partnership will make distributions to its partners with respect to
each fiscal quarter of the Partnership within 45 days after the end of
each fiscal quarter in an aggregate amount equal to its Available Cash
for such quarter.  Available Cash generally means, with respect to any
fiscal quarter of the Partnership, all cash on hand at the end of such
quarter less the amount of cash reserves established by the Managing
General Partner in its reasonable discretion for future cash
requirements.  These reserves are retained to provide for the proper
conduct of the Partnership's business, the payment of debt principal
and interest and to provide funds for distribution during the next four
quarters.

 The Partnership will distribute 100% of its Available Cash (98% to all
Unitholders and 2% to the General Partners) until the Minimum Quarterly
Distribution ($.54 per unit) for such quarter has been met.  During the
Subordination Period (defined below), to the extent there is sufficient
Available Cash, the holders of Common Units have the right to receive
the Minimum Quarterly Distribution, plus any arrearages, prior to the
distribution of Available Cash to holders of Subordinated Units.

 The Subordination Period will be the first day of any quarter beginning
after December 31, 2001, in which (a) distributions from Operating Surplus
(as defined in the Partnership Agreement) on the Common Units and the
Subordinated Units with respect to each of the three consecutive four-
quarter periods immediately preceding such date equaled or exceeded the
Minimum Quarterly Distribution on all of the outstanding Common and
Subordinated Units during such periods, (b) the Adjusted Operating Surplus
(as defined in the Partnership Agreement) generated during each of the
three consecutive four-quarter periods immediately preceding such date
equaled or exceeded the Minimum Quarterly Distribution on all of the
outstanding Common and Subordinated Units plus the related distribution on
the General Partner interests in the Partnership during such periods, and
(c) there were no outstanding Common Unit Arrearages.

5. COMMITMENTS AND CONTINGENCIES

 The Partnership has succeeded to obligations of the self-insurance
programs maintained by Empire and Synergy for any incidents occurring prior
to December 17, 1996.  These companies' insurance programs provided
coverage for comprehensive general liability and vehicle liability for
catastrophic exposures as well as those risks required to be insured by law
or contract.  These companies retained a significant portion of certain
expected losses related primarily to comprehensive general liability and
vehicle liability.  Estimated liabilities for self-insured losses were
recorded based upon the Partnerships' estimates of the aggregate self-insured
liability for claims incurred.

 A number of personal injury, property damage and product liability suits
are pending or threatened against the Partnership.  These lawsuits have
arisen in the ordinary course of the Partnership's business and involve
claims for actual damages and in some cases, punitive damages, arising from
the alleged negligence of the Partnership or as a result of product defects
or similar matters.  Of the pending or threatened matters, a number involve
property damage and several involve serious personal injuries.  In certain
cases, the claims made are for relatively large amounts.  Although any
litigation is inherently uncertain, based on past experience, the
information currently available and the presence of insurance coverage, the
Partnership does not believe that these pending or threatened litigation
matters will have a material adverse effect on its results of operations or
its financial condition.

6. RESTRICTED UNIT PLAN

 The Partnership adopted the 1996 Restricted Unit Plan (the 'Restricted
Unit Plan') which authorizes the issuance of Common Units with an aggregate
value of $12.5 million (approximately 583,000 Common Units) to directors,
executives, managers and selected supervisors of the Partnership.  Units
issued under the Restricted Unit Plan are subject to a bifurcated vesting
procedure such that (a) 25% of the issued Units will vest over time with
one-third of such units vesting at the end of each of the third, fifth and
seventh anniversaries of the issuance date, and (b) the remaining 75% of
the Units will vest automatically upon, and in the same proportions as, the
conversion of Subordinated Units to Common Units.  Restricted Unit Plan
participants are not eligible to receive quarterly distributions or vote
their respective Units until vested.  Restrictions generally limit the sale
or transfer of the Units during the restricted periods.  The value of the
restricted Unit is established by the market price of the Common Unit at
the date of grant.  As of June 30, 1998, restricted common units with a
value of $10.4 million have been awarded.

7. PARTNERS' CAPITAL

 The Subordinated Units will convert into Common Units on the first day
after the record date established for the distribution in respect of any
quarter ending on or after (a) December 31, 1999, (with respect to one-
quarter of the Subordinated Units) and (b) December 31, 2000 (with respect
to one-quarter of the Subordinated Units) in respect of which (i)
distributions of Available Cash from Operating Surplus on the Common Units
and the Subordinated Units with respect to each of the three consecutive
four-quarter periods immediately preceding such date equaled or exceeded
the sum of the Minimum Quarterly Distribution on all of the outstanding
Common Units and Subordinated Units during such periods, (ii) the Adjusted
Operating Surplus generated during each of the two consecutive four-quarter
periods immediately preceding such date equaled or exceeded the sum of the
Minimum Quarterly Distribution on all of the outstanding Common Units and
Subordinated Units and the related distribution on the general partner
interests in the Partnership during such periods, and (iii) there are no
outstanding Common Unit Arrearages; provided, however that the early
conversion of the second one-quarter of Subordinated Units may not occur
until at least one year following the early conversion of the first one-
quarter of Subordinated Units.

 Upon expiration of the Subordination Period, all remaining Subordinated
Units will convert into Common Units on a one-for-one basis and will
thereafter participate pro rata with the other Common Units in
distributions of Available Cash.

8. EMPLOYEE BENEFIT PLAN

 The Partnership established a defined contribution retirement plan
available to substantially all employees.  Employees who elect to
participate may contribute a percentage of their salaries to the plan.  The
Partnership may make contributions to the plan at the discretion of the
Board of Directors.  Contributions to the plan were not material for the
year ended June 30, 1998 or the period ended June 30, 1997.

9. OPERATING LEASES

 The Partnership leases retail sales offices and administrative office
space under noncancelable operating leases expiring at various times
through fiscal year 2008.  These leases generally contain renewal options
and require the Partnership to pay all executory costs (property taxes,
maintenance and insurance).  Lease expense for the year ended June 30, 1998
was $5.6 million and for the period December 17, 1996 to June 30, 1997 was
$2.5 million.

 Future minimum lease payments at June 30 were:
       
               1999              $5,046
               2000               4,519
               2001               4,258
               2002               3,857
               2003               3,210
               Thereafter         2,378

10. ADDITIONAL CASH FLOW INFORMATION

                                                   1998       1997
                                                   ----       ----
                                                           
     Noncash Transactions                                  
       Assets acquired in exchange for              
       partnership interest                      $17,589    $14,784
       Assets acquired in exchange for                
       current liabilities and long term debt     $7,243     $3,527
                                                           
     Cash Payment Information                              
       Cash paid for interest                    $10,939     $9,942

11. QUARTERLY DATA (UNAUDITED)

Fiscal 1998:             (a)        (a)        (a)        (a)  
                         September  December   March      June 
                         30         31         31         30
                                                          
Revenues                 $152,157   $241,778   $229,332   $144,862
Operating income (loss)   (2,892)     14,569     19,916     (2,818)
Net income (loss)         (7,694)      9,502     15,049     (7,431)
Net income (loss) per                                     
unit                        (.44)        .54        .76       (.37)
                                                          
                                    Dec. 17,              
                                    1996 to
Fiscal 1997:             (a)        (a)  Dec.  (a)        (a)  
                                    31, 1996   March 31   June 30
                                                          
Revenues                          $ 40,370     $220,566   $128,694
Operating income (loss)              4,076       15,107     (3,419)
Net income (loss)                    3,293       10,637     (8,174)
Net income (loss) per unit            0.20         0.63      (0.49)


I.   Independent Accountants' Report



Board of Directors and Stockholders
Empire Energy Corporation
Lebanon, Missouri


 We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of EMPIRE ENERGY CORPORATION for each
of the periods ended June 30, 1996, July 31, 1996, September 30, 1996, and
December 16, 1996.  These financial statements are the responsibility of
the Company's management.  Our responsibility is to express an opinion on
these financial statements based on our audits.

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

 In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and
cash flows of EMPIRE ENERGY CORPORATION for each of the periods ended
June 30, 1996, July 31, 1996, September 30, 1996, and December 16, 1996, in
conformity with generally accepted accounting principles.


BAIRD, KURTZ & DOBSON


Springfield, Missouri
August 4, 1997

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEAR ENDED JUNE 30, 1996
THE MONTH ENDED JULY 31, 1996,
THE TWO MONTHS ENDED SEPTEMBER 30, 1996 AND
THE TWO AND ONE-HALF MONTHS ENDED DECEMBER 16, 1996
(In Thousands)



                                      For the Periods Ended
                                    ------------------------
                                December  Septembe  July   June
                                16,       r 30,     31,    30,
                                1996      1996      1996   1996
                                --------  --------  ----- ------
                                                           
1.   REVENUES                   $28,166  $12,439   $2,596 $98,821
                                                           
1.   COST OF SALES              15,400     6,471    1,439  50,080
2.                                                         
3.   GROSS PROFIT               12,766     5,968    1,157  48,741
                                ------     -----    -----  ------
                                                           
1.   EXPENSES                                              
 Operating, general and                            
 administrative                   6,386    4,528    2,480  33,020
 Depreciation and amortization    1,344    1,087      499   5,875
                                --------   -----    -----   -----
                                  7,730    5,615    2,979  38,895
                                --------   -----    -----   -----
                                                           
1.   OPERATING INCOME             5,036      353   (1,822)  9,846
                                                           
1.   INTEREST EXPENSE, Net        1,917    1,487       21   2,598
                                -------    -----   ------   -----
                                                           
1.   INCOME (LOSS) BEFORE                                  
       INCOME TAXES               3,119   (1,134)   (2,039) 7,248
                                                           
INCOME TAX                                                 
 PROVISION (BENEFIT)              1,197     (400)     (765) 3,550
                                -------   ------    ------- -----
                                                           
NET INCOME (LOSS)               $ 1,922   $ (734)  $(1,274) $3,698
                                =======   =======  ======== ======

See Notes to Consolidated Financial Statements.  

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

FOR THE YEAR ENDED JUNE 30, 1996
THE MONTH ENDED JULY 31, 1996,
THE TWO MONTHS ENDED SEPTEMBER 30, 1996 AND
THE TWO AND ONE-HALF MONTHS ENDED DECEMBER 16, 1996
(In Thousands)



                                Additional                    Total
                         Common  Paid-in   Retained  Treasury Stockholders'
                         Stock    Stock    Earnings  Stock    Equity
                         -----   ------    --------  -----   ------
                                                             
1.   BALANCE, JUNE 30,              
     1995                $  12   $46,099     $445    $(21)   $46,535
                                                             
NET INCOME                   _         _    3,698       _      3,698
                         ------  --------  ------  -------   -------
                                                             
BALANCE, JUNE 30, 1996      12    46,099    4,143     (21)    50,233
                                                             
NET LOSS                     _         _   (1,274)      _     (1,274)
                         ------  --------  -------  -------- --------  
                                                             
BALANCE, JULY 31, 1996      12    46,099    2,869      (21)    48,959
                                                             
1.   PURCHASE OF COMPANY                                     
     STOCK                 (11)  (70,744)       _        _    (70,755)
                                                             
1.   EFFECT OF PURCHASE                                      
     ACCOUNTING               _    26,966  (2,869)      21     24,118
                                                             
NET LOSS                      _         _    (734)       _      (734)
                         ------   -------  ------   -------   ------- 
                                                             
BALANCE, SEPTEMBER 30,      
1996                         1     2,321     (734)       _     1,588
                                                             
1.   PURCHASE OF COMPANY   (1)   (13,999)       _        _   (14,000)
     STOCK                                                        

1.   EFFECT OF PURCHASE                                      
2.   ACCOUNTING              1    25,677     734         _    26,412
                                                             
1.   NET INCOME              _         _   1,922         _     1,922
                         ------  -------- ------     ------  -------  
                                                             
BALANCE, DECEMBER 16,    
1996                     $   1   $13,999 $ 1,922     $   _   $15,922         
                         ======  ======= =======     ======  =======

See Notes to Consolidated Financial Statements.
                                                             
  CONSOLIDATED STATEMENTS OF CASH FLOWS
  
FOR THE YEAR ENDED JUNE 30, 1996
THE MONTH ENDED JULY 31, 1996,
THE TWO MONTHS ENDED SEPTEMBER 30, 1996 AND
THE TWO AND ONE-HALF MONTHS ENDED DECEMBER 16, 1996
(In Thousands)



                                    December September July    June
                                    16,      30,       31,     30,
                                    1996     1996      1996    1996
                                    -----    ----      ----    ----
CASH FLOWS FROM OPERATING                                        
 ACTIVITIES                                                     
  Net income (loss)                 $1,922  $ (734)  $ (1,274) $3,698
   Items not requiring (providing)                              
   cash:
     Depreciation                    1,195   1,002        474   5,593  
     (Gain) loss on sale of assets       _      (4)         8     (67)
     Amortization                      149      85         25      282
     Deferred income taxes            (126)      _          _    1,075
  Changes in:                                                   
   Trade receivables                (6,089) (2,485)       222   (1,799)
   Inventories                       (147)  (3,896)      (340)    (348)
   Accounts payable                    998     283        335    1,301
   Accrued expenses and self           
   insurance                         2,114   1,164         (5)   2,124
   Income taxes payable                                    
   (refundable)                      1,016     209       (768)     270
   Due from SYN, Inc.               (1,863)      _          _        _
  Prepaid expenses and other        (1,678)   (536)      (100)    (279)
                                    -------  ------      -----   ------
     Net cash provided by (used                                 
     in) operating activities       (2,509) (4,912)     (1,423) 11,850
                                    -------  ------      -----  ------
                                                                
CASH FLOWS FROM INVESTING                                       
 ACTIVITIES                                                     
  Proceeds from sale of assets          25      18          14     162
  Purchases of property and                                
  equipment                         (1,475)   (861)       (487) (3,184)
  Capitalized costs                   (242)      _           _       _
  Purchase of assets from SYN Inc.       _       _           _ (35,980)
                                      ------  ------   ------- --------
Net Cash used in investing                                    
   activities                       (1,692)   (843)       (473) (39,002)
                                        ----    ------  ------  -------
  
  
  CONSOLIDATED STATEMENTS OF CASH FLOWS
  
YEAR ENDED JUNE 30, 1996
THE MONTH ENDED JULY 31, 1996,
THE TWO MONTHS ENDED SEPTEMBER 30, 1996 AND
THE TWO AND ONE-HALF MONTHS ENDED DECEMBER 16, 1996
(In Thousands)



                                    December  September July   June
                                    16,       30,       31,    30,
                                    1996      1996      1996   1996
                                    ------    ------    ------ ------
                                                               
CASH FLOWS FROM FINANCING                                      
 ACTIVITIES                                                    
  Increase (decrease) in credit                       
  facilities                        $4,806    $4,800    $   _  $(5,500)
  Principal payments on purchase                               
   obligations                        (64)       (35)      (15)   (126)
  Checks in process of collection     (37)         _        37    (158)
  Proceeds from (repayments of)                                
   acquisition  credit facility         _          _   (31,100) 35,000
  Proceeds from management buy out                             
   loan                                 _          _    94,000       _
  Purchase of company stock in                                 
   management buy out                   _          _   (59,000)      _
  Payment of debt acquisition             
   costs                                _          _    (3,100)      _ 
                                   ------     ------    -------   -----
  Net cash provided by (used                                
  in) financing activities          4,705      5,602       (15)  29,216
                                   ------     ------    -------   -----
                                                               
INCREASE (DECREASE) IN CASH           504      (153)    (1,911)   2,064
                                                               
CASH, BEGINNING OF PERIOD               _       153      2,064        0
                                   ------     -------   ------    -----
                                                               
CASH, END OF PERIOD                $  504     $   0    $ 2,064  $ 2,064
                                   ======     ======   =======  =======

See Notes to Consolidated Financial Statements.

NOTE 1:   NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
         ACCOUNTING POLICIES

 The consolidated financial statements for the periods ended July 31, 1996,
September 30, 1996, and December 16, 1996, are presented because of the
changes in control described in Note 2.  Due to the seasonal nature of the
propane business, the results of operations for these periods are not
necessarily indicative of results to be expected for a full year.

NATURE OF OPERATIONS

 The Company's principal operations are the retail sale of LP gas.  Most of
the Company's customers are owners of residential single or multi-family
dwellings who make periodic purchases on credit.  Such customers are
located in the Southeast and Midwest regions of the United States.

ESTIMATES

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

PRINCIPLES OF CONSOLIDATION

 The consolidated financial statements include the accounts of Empire
Energy Corporation and its subsidiaries.  All significant intercompany
balances have been eliminated in consolidation.

REVENUE RECOGNITION POLICY

 Sales and related cost of product sold are recognized upon delivery of the
product or service.

INVENTORIES

 Inventories are valued at the lower of cost or market.  Cost is determined
by the first-in, first-out method for retail operations and specific
identification method for wholesale operations.

NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
        ACCOUNTING POLICIES (Continued)

FUTURES CONTRACTS

 The Company uses commodity futures contracts to reduce the risk of future
price fluctuations for LPG inventories and contracts.  Gains and losses on
futures contracts purchased as hedges are deferred and recognized in cost
of sales as a component of the product cost for the related hedged
transaction.  In the statement of cash flows, cash flows from qualifying
hedges are classified in the same category as the cash flows of the items
being hedged.  Net realized gains and losses and unrealized gains and
losses on open positions are not material.

PROPERTY AND EQUIPMENT

  Depreciation is provided on all property and equipment on the straight-
line method over estimated useful lives of 5 to 33 years.

(1)  Fair Value of Financial Instruments

  The company's only financial instruments are cash, long-term debt and
related accrued interest for which their carrying amounts approximate fair
value.

INCOME TAXES

  Deferred tax liabilities and assets are recognized for the tax effects of
differences between the financial statement and tax bases of assets and
liabilities.  A valuation allowance is established to reduce deferred tax
assets if it is more likely than not that a deferred tax asset will not be
realized.

AMORTIZATION

  The excess of cost over fair value of net assets acquired (originally
$4,850,000) is being amortized on the straight-line basis over 20 years.


NOTE 2: CHANGES OF CONTROL

  On June 30, 1994, the Company was separated from Empire Gas Corporation
(subsequently All Star Gas referred to hereafter as Empire Gas) in an
exchange of the majority ownership of Empire Gas for all of the shares of
the Company (a subsidiary of Empire Gas).  The Company received locations
principally in the Southeast plus certain home office assets and
liabilities.

  Professional and other fees amounting to $1,926,000 were incurred in
connection with an effort to sell the Company and are included in general
and administrative expense during the year ended June 30, 1996.

  On August 1, 1996, the principal shareholder of the Company since its
inception and certain other shareholders sold their interest in the Company
to a new entity formed by the remaining shareholders of the Company
(Management Buy Out).

  In connection with this transaction, the principal shareholder of the
Company terminated employment with the Company as well as terminated
certain lease and use agreements.  The new entity was principally owned by
the son of the former principal shareholder.  All references in these
financial statements to the principal shareholder relate to the former
principal shareholder.

  The new entity paid approximately $59,000,000 cash, and distributed
certain home office assets and a portion of the SYN Inc. receivable in
exchange for the shares of Company stock purchased.  In addition to the
above consideration, the new entity issued a $5,000,000 note payable to the
principal shareholder.  The amount paid to the selling shareholders was
financed with proceeds from a new credit agreement.

  The new credit facility provides for a $42,000,000 term loan, a
$52,000,000 second term loan, a $20,000,000 working capital facility and a
$10,000,000 acquisition credit facility.  The new credit facility includes
working capital, capital expenditures, cash flow and net worth requirements
as well as dividend restrictions.

 On October 7, 1996, the new ownership of the Company pursuant to the
Management Buy Out sold 100% of Company common stock for approximately
$14,000,000 cash to Northwestern Growth Corporation (NGC).

  Because of the changes in control of the Company, the balance sheet
accounts were adjusted at August 1, 1996 and October 7, 1996, to reflect
new bases determined using the principles of purchase accounting.

NOTE 3: SYNERGY ACQUISITION

  On August 15, 1995, the Company acquired the assets of 38 retail
locations previously operated by Synergy Group, Inc.  These locations were
purchased from SYN Inc., a company formed for the purpose of acquiring
Synergy Group Incorporated.  SYN Inc. is majority owned by Northwestern
Growth Corporation, a wholly-owned subsidiary of Northwestern Public
Service Company, and minority owned and managed by Empire Gas.  The
purchase price of the 38 retail locations was approximately $38 million.
The total consideration for the purchase was approximately $36 million in
cash financed by the new acquisition credit facility (see Note 5) plus the
assets of nine retail locations principally in Mississippi valued at
approximately $2 million.  The results of operations for the period after
August 15, 1995, of the Synergy locations are included in the accompanying
financial statements.  The purchase price of the Synergy assets has been
allocated as follows (In Thousands):

       Current assets                            $ 2,499
       Property and equipment                     27,435
       Due from SYN Inc.                           7,978
                                                 -------
                                                 $37,912
                                                 =======

  Unaudited pro forma operations assuming the acquisition was made at the
beginning of the year ended June 30, 1995, is presented below.  Pro forma
results for the year ended June 30, 1996, are not presented since they
would not differ materially from the audited results of operations
presented in the statement of income.

                                                   1995
                                                   -----
                                              (In Thousands)

        Operating revenue                        $82,222
        Cost of product sold                      40,724
                                                  -------
        Gross profit                         $    41,498
                                                  =======

  The purchase price of the assets acquired from SYN Inc. is subject to
adjustment based on the amount of working capital acquired by the Company.
A receivable has been recorded in the amount of $3,978,000, which reflects
the reduction in purchase price of the assets based on the amount of
working capital acquired.  On August 1, 1996, this receivable was assigned
to the former principal shareholder in connection with the management buy
out.

  The purchase price of the assets acquired from SYN Inc. is also subject
to adjustment based on the value of consumer tanks which cannot be located
within a specified period of time.  The Company has made a claim to SYN
Inc. for approximately $4,000,000 which represents the value of unlocated
tanks at June 30, 1996.  A receivable for these tanks has been recorded on
the balance sheet at June 30, 1996.  On August 1, 1996, one-half of this
receivable was assigned to the former principal shareholder in connection
with the management buy out.

  In connection with the October 7, 1996, acquisition of the Company's
stock by NGC, the SYN Inc. receivable was paid in full and assumed by NGC.


NOTE 4: RELATED-PARTY TRANSACTIONS

 The Company provides data processing, office rent and other clerical
services to two corporations owned by officers and shareholders of the
Company and is reimbursed $5,000 per month for these services.

 The Company leases a jet aircraft and an airport hangar from a corporation
owned by the principal shareholder of the Company.  The lease requires
annual rent payments of $100,000.  In addition to direct lease payments,
the Company is also responsible for the operating costs of the aircraft and
the hangar.  The lease agreement was terminated August 1, 1996, in
connection with the management buy out.

 The Company has an agreement with a corporation owned by the principal
shareholder of the Company which provides the Company the right to use
business guest facilities.  The agreement requires annual payments of
$250,000.  In addition to direct payments, the Company is also responsible
for providing vehicles and personnel to serve as security for the
facilities.  This agreement was terminated August 1, 1996, in connection
with the management buy out.

 The Company leases the corporate home office, land, buildings and certain
equipment from a corporation owned principally by the principal
shareholder.  The lease requires annual payments of $200,000.  The lease
was terminated August 1, 1996, in connection with the management buy out.

 The Company leases a lodge from a corporation owned by the principal
shareholder of the Company.  The lease requires annual rent payments of
$120,000.  The lease was terminated August 1, 1996, in connection with the
management buy out.

 On August 1, 1996, the Company entered into a new lease agreement with
entities controlled by the former principal shareholder.  The new lease
agreement provides for the payment of $600,000 per year for the corporate
home office, land, buildings and certain equipment, the use of the airport
hangar and the right to use land underlying the Company's warehouse
facility.  This lease was assumed by Cornerstone on December 17, 1996.

 A subsidiary of the Company entered into a seven-year services agreement
with Empire Gas to provide data processing and management information
services beginning July 1, 1994.  The services agreement provides for
payments by Empire Gas to be based on an allocation of the subsidiary's
actual costs based on the gallons of LP gas sold by Empire Gas as a
percentage of the gallons of LP gas sold by the Company and Empire Gas
combined.  For the year ended June 30, 1996, total amount received related
to this services agreement was $713,000.  For the month ended July 31,
1996, the two months ended September 30, 1996, and the two and one-half
months ended December 16, 1996, amounts were $88,000, $195,000 and
$173,000, respectively.  Such amounts have been netted against related
general and administrative expenses in the accompanying statements of
operations.  This services agreement was assumed by Cornerstone on December
17, 1996.


NOTE 5: LONG-TERM DEBT

 Long-term debt at June 30, 1996, consists of the following:

                                                     (In Thousands)
 Revolving credit facility (A)                       $       _
 Acquisition credit facility (B)                        31,100
 Purchase contract obligations (C)                         361
                                                      --------
                                                        31,461
 Less current maturities                                 6,019
                                                      --------
                                                     $  25,442
                                                     ==========
                                                     

(A)  The Company has an agreement with a lender to provide a revolving
   credit facility.  The facility provides for borrowings up to $20 million,
   bears interest at either 1/2% over the lender's prime rate or 1 1/8% over 
   the Eurodollar rate and matures June 30, 2000. The facility includes working
   capital, capital expenditure, cash flow and net worth requirements as well
   as dividend restrictions which limit the payment of cash dividends to 50%
   of the preceding year's net income.  The Company's unused revolving credit
   line at June 30, 1996, amounted to $18,148,000 after considering $1,852,000
   of letters of credit.  The credit facility was terminated August 1, 1996,
   in connection with the management buy out.

(B)  On August 15, 1995, the Company modified the above agreement to
   include a $35 million acquisition credit facility which was used for the
   purchase of assets from SYN Inc.  The acquisition credit facility bears
   interest at either 1/2% over the lender's prime rate or 1 1/8% over the
   Eurodollar rate.  The acquisition credit facility requires quarterly
   principal payments of $1,944,000.  This credit facility was terminated
   August 1, 1996, in connection with the management buy out.

(C)  Purchase contract obligations arise from the purchase of operating
   businesses and are collateralized by the equipment and real estate acquired
   in the respective acquisitions.  The Company has also entered into purchase
   contract obligations for equipment used in administrative activities.  At
   June 30, 1996, these obligations carried interest rates ranging from 7% to
   10% and are due periodically through 2001.

(D)  On August 1, 1996, in conjunction with the management buyout, the
   Company entered into an agreement with a lender to provide a $42 million
   term note maturing December 31, 2002, a $52 million term note maturing
   December 31, 2006, a $20 million revolving working capital credit facility
   maturing June 30, 2001, and a $10 million acquisition credit facility
   maturing June 30, 2001.  The Company has the choice of keeping the
   borrowings at prime or transferring the loans to Eurodollar.  Amounts at
   prime on these notes bear interest at the Bank of Boston daily rate or 1/21%
   over the Federal Funds Rate.  Amounts at Eurodollar on these notes bear
   interest at the Eurodollar rate plus an applicable margin which is
   dependent on a ratio of debt (excluding note payable to former principal
   shareholder and purchase contract obligations) to earnings before
   depreciation, interest and income taxes.  The facility includes working
   capital, capital expenditures, cash flow and net worth requirements as well
   as dividend restrictions.  This credit facility was terminated December 16,
   1996, in connection with the public offering.

(E)  On August 1, 1996, in conjunction with the management buyout, the
   Company entered into a $5 million subordinated promissory note bearing
   interest at 8% with the former principal shareholder of the Company.  On
   October 7, 1996, this note was paid by NGC.


NOTE 6: INCOME TAXES

  The provision (credit) for income taxes includes these components (in
thousands):

                                 Two and   Two       One    
                                 One-Half  Months    Month  Year
                                 Months    Ended     Ended  Ended
                                 Ended
                                 December  September July   June
                                 16,       30,       31,    30,
                                 1996      1996     1996   1996
                                 ----      ----     ----   ----
                                                            
Taxes currently payable          $1,323                   
(refundable)                     $1,323    $ (400)  $(765) $2,475
Deferred income taxes             (126)         _       _   1,075
                                 ------      ----- ------  ------  
                                 $1,197    $ (400)  $(765)  $3,550
                                 ======    =======  ====== =======

 A reconciliation of income tax expense at the statutory rate to the
Company's actual income tax expense is shown below (in thousands):

                                 Two and   Two       One    
                                 One-Half  Months    Month  Year
                                 Months    Ended     Ended  Ended
                                 Ended
                                 December  Septembe  July   June
                                 16,       r 30,     31,    30,
                                 1996      1996      1996  1996
                                 ----      ----      ----  ----
                                                            
 Computed at the statutory rate  $1,060         
 (34%)                           $1,060    $(386)    $ 693 $2,464 
 Increase resulting from:                                   
   Amortization of excess of                                
     cost over fair value of net 
     assets acquired                196       33        17     79
   State income taxes - net of                              
     federal tax benefit            102      (54)     (100)   248
   Change in estimated taxes                                  700
   Other                          (161)        7       11      59
                                 ------    -----     -----  -----  
 Actual tax provision           $1,197     $(400)   $(765) $3,550
                                ======     ======   ====== ======

NOTE 7: SELF-INSURANCE AND RELATED CONTINGENCIES

 Under the Company's insurance program, coverage for comprehensive general
liability and vehicle liability is obtained for catastrophic exposures as
well as those risks required to be insured by law or contract.  The Company
retains a significant portion of certain expected losses related primarily
to comprehensive general liability and vehicle liability.  Under these
insurance programs, the Company self-insures the first $1 million of
coverage (per incident) on general liability and on vehicle liability.  In
addition, the Company has a $100,000 deductible for each and every
liability claim.  The Company obtains excess coverage from carriers for
these programs on claims-made basis policies.  The excess coverage for
comprehensive general liability provides a loss limitation that limits the
Company's aggregate of self-insured losses to $1.5 million per policy
period.

 The Company self insures the first $250,000 of workers' compensation
coverage (per incident).  The Company purchased excess coverage from
carriers for workers' compensation claims in excess of the self-insured
coverage.  Provisions for losses expected under this program were recorded
based upon the Company's estimates of the aggregate liability for claims
incurred.  The Company provided letters of credit aggregating approximately
$1,852,000 in connection with this program.

 Provisions for self-insured losses are recorded based upon the Company's
estimates of the aggregate self-insured liability for claims incurred.

 The Company self-insures health benefits provided to the employees of the
Company and its subsidiaries.  Provisions for losses expected under this
program are recorded based upon the Company's estimate of the aggregate
liability for claims incurred.

 In conjunction with the restructuring that occurred in June 1994, the
Company agreed to indemnify Empire Gas for 47.7% of the self-insured
liabilities of Empire Gas incurred prior to June 30, 1994.  The Company
includes in its self-insurance liability its best estimate of the amount it
will owe Empire Gas under the indemnification agreement.

 The Company and its subsidiaries are presently defendants in various
lawsuits related to the self-insurance program and other business-related
lawsuits which are not expected to have a material, adverse effect on the
Company's financial position or results of operations.  All liabilities
related to the insurance program and other business-related lawsuits were
assumed by Cornerstone on December 17, 1996.

NOTE 8: INCOME TAX AUDITS

 The State of Missouri has assessed Empire Gas approximately $1,400,000 for
additional state income tax for the years ended June 30, 1992 and 1993.  An
amount approximating one-half of the above assessment could be at issue for
the year ended June 30, 1994.  Empire Gas and Empire Energy have protested
these assessments and are currently waiting for a response from the
Missouri Department of Revenue.  It is likely that this matter will have to
be settled in litigation.  Empire Gas and Empire Energy believe that they
have a strong position on this matter and intend to vigorously contest the
assessment.  It is not possible at this time to conclude on the outcome of
this matter.

 The Company and its subsidiaries are presently included in various state
tax audits which are not expected to have a material, adverse effect on the
Company's financial position or results of operation.

 The Company's Federal Income Tax Returns have been audited through the
year ended June 30, 1994, and all income taxes due have either been accrued
or paid.

 As a former member of the Empire Gas controlled group and in connection
with a tax indemnity agreement with Empire Gas, the Company agreed to
indemnify 47.7% of the total liabilities related to these tax audits of the
years ended June 30, 1994, and prior thereto.


NOTE 9: STOCK OPTIONS

 The Company's stock options provide for a fixed option price of $7.00 per
share for options granted to officers and key employees.  Options granted
are exercisable beginning one year after the date of grant at the rate of
20% per year and expire six years after the date of grant.  Option activity
for each period was:

 Stock options outstanding June 30, 1995                 1,145,000

 Options granted                                            25,000
 Options cancelled                                         (50,000)
                                                          ---------
 Stock options outstanding June 30, 1996                 1,120,000

 Options cancelled                                        (150,000)
 Options exercised                                        (970,000)
                                                           --------

 Stock options outstanding December 16, 1996                     0
                                                           ========


NOTE 10: ADDITIONAL CASH FLOW INFORMATION (In Thousands)

                               Two and   Two       One    
                               One-Half  Months    Month  Year
                               Months    Ended     Ended  Ended
                               Ended
                               December September July   June
                               16,      30,       31,    30,
                               1996     1996      1996   1996
                               ----     ----      ----   ----
Noncash Investing and                                     
Financing  Activities
------------------------------
  Purchase contract       
    obligations incurred       $   _    $   _    $    _  $ 222
  Nonmonetary assets                                      
    distributed to
    former principal shareholders  _      6,755       _      _
 Note payable issued to                                   
    former principal shareholder   _      5,000       _      _
                                                          
Additional Cash Payment Information          
------------------------------------
 Interest paid                     _        804     106  2,432
 Income taxes paid (refunded)      _       (609)      _  2,995

A.
B.   NOTE 11:  SIGNIFICANT ESTIMATES AND CONCENTRATIONS

 Generally accepted accounting principles require disclosure of certain
significant estimates and current vulnerabilities due to certain
concentrations.  Those matters include the following:

DEPENDENCE ON PRINCIPAL SUPPLIERS

 Three suppliers, Conoco, Phillips and Texaco, account for approximately
50% of Empire Energy's volume of propane purchases.

 Although the Company believes that alternative sources of propane are
readily available, in the event that the Company is unable to purchase
propane from one of these three suppliers, the failure to obtain alternate
sources of supply at competitive prices and on a timely basis would have a
material, adverse effect on the Company.

ESTIMATES

 Significant estimates related to self-insurance, litigation,
collectibility of receivables and income tax assessments are discussed in
Notes 3, 7 and 8.  Actual losses related to these items could vary
materially from amounts reflected in the financial statements.


A.   NOTE 12: SUBSEQUENT EVENT

 On December 17, 1996, substantially all of the assets and liabilities of
the Company were contributed to Cornerstone Propane, L.P., a Delaware
limited partnership, a subsidiary of Cornerstone Propane Partners, L.P.
Following this transaction, on December 17, 1996, Cornerstone Propane
Partners, L.P. completed its initial public offering (see Note 1 to the
consolidated financial statements of Cornerstone Propane Partners, L.P. for
the period ended June 30, 1997, included in this form 10-K.



REPORT OF INDEPENDENT ACCOUNTANTS



To the Board of Directors and Stockholders of
CGI Holdings, Inc.


  In our opinion, the accompanying consolidated statements of operations,
stockholders' equity, and cash flows present fairly, in all material
respects, the results of operations and cash flows of CGI Holdings, Inc.
and its subsidiaries for the four and one-half month period ended December
16, 1996 and for the year ended July 31, 1996, in conformity with generally
accepted accounting principles.  These financial statements are the
responsibility of the Company'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



San Francisco, California
August 8, 1997




CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands)




                                           August 1,   Fiscal
                                                       Year
                                           1996 to     Ended
                                           December    July 31,
                                           16,
                                           1996        1996
                                           ----        ----
                                                       
Sales and other revenue                  $ 185,460    $384,354
Costs and expenses:                                    
 Cost of sales, except for depreciation                
  and amortization                         173,155     351,213
 Operating expenses                          8,181      21,046
 Sale of partnership interest                  660           _
 General and administrative expenses         1,738       3,835
 Depreciation and amortization               1,604       4,216
 Interest expense                            2,238       5,470
                                         ---------     -------
Loss before income taxes                    (2,116)     (1,426)
Income tax benefit                            (748)       (473)
                                          ---------    --------
         
Net Loss                                  $ (1,368)  $    (953)
                                          =========   =========

The accompanying Financial Statements are an integral part of these financial
statements.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in Thousands)



                                                Additional
                              Common             Paid-In   Accumulated
                              Stock    Warrants   Capital    Deficit
                             --------- --------  ---------  ---------
                                                            
                                                            
Balance at July 31, 1995     $    42   $ 2,134   $ 8,969   $(3,292)
Net loss                           _         _         _      (953)
Repurchase of common stock         _         _       (24)        _
Accrued dividends on                                        
 redeemable and
 exchangeable preferred stock      _         _         _      (778)
                              -------  -------  --------   --------
Balance at July 31, 1996           42    2,134     8,945     (5,023)
Net loss                            _        _         _     (1,368)
Accrued dividends on                                        
 redeemable and
 exchangeable preferred stock       _        _         _       (116)
                             --------   -------  --------   --------
Balance at December 16, 1996 $     42  $ 2,134   $ 8,945   $ (6,507)
                             ========  =======   =======   =========

The accompanying notes are an integral part of these financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars In Thousands)


                                           August 1,   Fiscal Year
                                           1996 to       Ended
                                           December16,  July 31,
                                              1996        1996
                                              ----        ----
CASH FLOWS FROM (USED FOR)                             
 OPERATING ACTIVITIES:                                 
  Net loss                                 $(1,368)     $(953)
  Adjustments to reconcile net loss to                 
    net cash from (used for) operating
    activities:               
     Depreciation and amortization           1,604      4,216
     Deferred income taxes                    (732)      (516)
     Sale of partnership interest              202          _
     Changes in assets and liabilities                 
      net of acquisitions:                                    
       Accounts and notes receivable       (11,532)    (2,950)
       Inventories                           4,257     (1,511)
       Prepaid expenses and deposits          (729)      (410)
       Other assets                           (154)      (193)
       Accounts payable                     11,082      9,327
       Accrued liabilities                  (1,007)       172
                                           --------  --------
                                             1,623      7,182
                                           --------  --------
                                                       
CASH FLOWS FROM (USED FOR)                             
 INVESTING ACTIVITIES:                                 
  Payments for acquisitions of retail               
  outlets                                         _    (3,000)
  Proceeds from sale of property and                   
   Equipment                                     57       415
  Purchases of and investments                         
   in property and equipment                 (1,503)   (3,060)
                                           ---------   -------
                                             (1,446)   (5,645)

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars In Thousands)


                                            August 1,    Fiscal Year
                                            1996 to      Ended
                                            December 16, July 31,
                                               1996       1996
                                               ----       ----
                                                        
CASH FLOWS FROM (USED FOR)                              
 FINANCING ACTIVITIES:                                  
  Repurchase of common stock                $     _     $  (24)
  Repayment of long-term debt                 (562)     (1,250)
  Borrowings on capital leases and other    
   term Loans                                     _      1,248
  Repayment of other notes payable              (252)     (561)
  Principal payments under capital lease                
   Obligations                                  (506)   (1,579)
  Borrowings (repayments) under 
   aquisition Line                             5,999    (2,275)
                                            --------   --------
                                               4,679    (4,441)
                                            --------   --------
  Net increase (decrease) in cash              4,856     (2,904)
  Cash balance, beginning of period            1,519      4,423
                                            --------   --------   
  Cash balance, end of period               $  6,375   $  1,519
                                            =========  ========

The accompanying notes are an integral part of these financial statements.    

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

THE COMPANY

  Pursuant to a Stock Purchase Agreement dated March 31, 1993, by and among
CGI Holdings, Inc., a Delaware corporation (the 'Company') formed to effect
this transaction and a major shareholder of Coast Gas Industries
('Industries'), the Company acquired all of the outstanding stock of
Industries (the 'Buyout').  The accompanying financial statements are
presented on the Company's basis of accounting giving effect to the Stock
Purchase Agreement.

  The Company engages in the sale and distribution of natural gas, crude
oil, natural gas liquids, liquefied petroleum gas ('LPG'), LPG storage and
transportation equipment through its wholly-owned subsidiary, Coast Gas,
Inc.  Its operations consist primarily of the sale, transportation and
storage of LPG to wholesale and retail customers; the sale of LPG storage
equipment; and the leasing of LPG storage and transportation equipment
under monthly operating leases.  Sales are made to approximately 77,000
customers in seven states, primarily in the western regions of the United
States.

  In connection with the Stock Purchase Agreement, the Company pays a
monthly fee to Aurora Capital Partners ('Aurora'), an investor in the
Company, for management services provided.  Payments for the four and one-
half month period ended December 16, 1996 were $101,625.  Payments for the
year ended July 31, 1996 amounted to $250,000.

PRINCIPLES OF CONSOLIDATION

  The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, Coast Gas, Inc., and its wholly-owned
subsidiary Coast Energy Group, Inc. ('CEG').  In 1989 the Company formed
CEG, headquartered in Houston, Texas, to conduct its wholesale procurement
and distribution operations.  All significant intercompany transactions
have been eliminated in consolidation.

REVENUE RECOGNITION

  Sales of natural gas, crude oil, natural gas liquids and LPG are
recognized when delivered to the customer.

ESTIMATES

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

CONCENTRATION OF CREDIT RISK

  Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of trade accounts
receivable.  The Company offers credit terms on sales to its retail and
wholesale customers.  The Company performs ongoing credit evaluations of
its customers' financial condition and, generally, requires no collateral
from its customers.  The Company maintains an allowance for uncollectible
accounts receivable based upon the expected collectibility of all accounts
receivable.

CASH FLOWS

  For purposes of the comparative statements of cash flows, the Company
considers all highly liquid investments having original maturities of three
months or less to be cash equivalents.  The carrying amount of cash, cash
equivalents and short-term debt approximates fair market value due to the
short maturity of these instruments.

INVENTORIES

  Inventories are stated at the lower of cost or market.  The cost of LPG
is determined using the last-in, first-out (LIFO) method.  The cost of
parts and fittings is determined using the first-in, first-out (FIFO)
method.

  During the four and one-half months ended December 16, 1996, inventory
quantities were reduced.  This reduction resulted in a liquidation of LIFO
inventory quantities carried at lower costs prevailing in prior years as
compared with the cost of purchases for the four and one-half month period
ended December 16, 1996, the effect of which decreased cost of goods sold
by approximately $.2 million and increased net income by approximately $.1
million.

PROPERTY AND EQUIPMENT

  Property and equipment are stated at cost.  Depreciation is computed
using the straight-line method over the estimated useful lives of the
assets as follows: buildings and improvements, 25 years; LPG storage and
rental tanks, 40 to 50 years; and office furniture, equipment and tank
installation costs, 5 to 10 years.  Leasehold improvements are amortized
over the shorter of the estimated useful life or the lease term.
Depreciation of equipment acquired under capital leases of $54,500 and
$132,000 for the four and one-half month period ended December 16, 1996 and
for the year ended July 31, 1996, respectively, is included in depreciation
and amortization expense.

  When property or equipment is retired or otherwise disposed, the cost and
related accumulated depreciation is removed from the accounts, and the
resulting gain or loss is credited or charged to operations.  Maintenance
and repairs are charged to earnings, while replacements and betterment's
that extend estimated useful lives are capitalized.

  A majority of the LPG rental and storage tanks are leased to customers on
a month-to-month basis under operating lease agreements.  Tank rental
income of approximately $.9 million and $2.3 million for the four and one-
half month period ended December 16, 1996 and for the year ended July 31,
1996, respectively, is included in sales and other revenue.  Direct costs
associated with the installation of LPG storage tanks leased to customers
are capitalized and amortized over the estimated average customer retention
term.

COST IN EXCESS OF NET ASSETS ACQUIRED

  The excess of acquisition cost over the estimated fair market value of
identifiable net assets of acquired businesses is amortized on a straight-
line basis over forty years.

  It is the Company's policy to review intangible assets for impairment
whenever events or changes in circumstances indicate that the carrying
amount of such assets may not be recoverable.  If such a review should
indicate that the carrying amount of intangible assets is not recoverable,
it is the Company's policy to reduce the carrying amount of such assets to
fair value.

DEFERRED CHARGES AND OTHER ASSETS

  Deferred charges consist primarily of deferred debt issuance costs and
capitalized non-compete covenant agreement costs.  Deferred debt issuance
costs are amortized using the bonds outstanding method over the life of the
related loans, other deferred charges are amortized on a straight-line
basis over varying lives, ranging from five to seven years.  Other assets
include customer lists purchased in business acquisitions that are
amortized on a straight-line basis over a ten-year life.

FUTURES CONTRACTS

  The Company routinely uses commodity futures contracts to reduce the risk
of future price fluctuations for natural gas and LPG inventories and
contracts.  Gains and losses on futures contracts purchased as hedges are
deferred and recognized in cost of sales as a component of the product cost
for the related hedged transaction.  In the statement of cash flows, cash
flows from qualifying hedges are classified in the same category as the
cash flows from the items being hedged.  Contracts which do not qualify as
hedges are marked to market, with the resulting gains and losses charged to
current operations.  Net realized gains and losses for the four and one-
half month period ended December 16, 1996 and for the year ended July 31,
1996 are not material.


INTEREST RATE SWAP AGREEMENT

  Interest rate differentials to be paid or received under interest rate
swap agreements are accrued and recognized over the life of the agreements.
Interest payable or receivable under these interest rate swap agreements is
recognized in the periods when market rates exceed contract limits as an
increase or reduction in interest expense.  Interest rate swap agreements
held by the Company expired during fiscal 1996.

IMPAIRMENT OF LONG-LIVED ASSETS

  On August 1, 1996, the Company adopted Statement of Financial Accounting
Standards ('SFAS') No. 121, 'Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of ('SFAS No. 121').  This
statement requires impairment losses to be recorded on long-lived assets
used in operations and certain identifiable intangible assets when
indications of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the assets'
carrying amount.  Adoption of SFAS No. 121 did not have a material impact
on the financial statements.

ACCOUNTING FOR STOCK-BASED COMPENSATION

  The Company applies APB Opinion 25 and related interpretations in
accounting for the stock options and stock appreciation rights.  Had
compensation cost for the Company's options and stock appreciation rights
been determined based on the fair market value at the grant date of these
awards consistent with the methodology described by SFAS 123 'Accounting
for Stock-Based Compensation' the effect on the Company's net income would
not have been material. 


NOTE 2: ACCOUNTS AND NOTES RECEIVABLE AND OTHER ASSETS

  Notes receivable arise in the ordinary course of business from the sale
of LPG storage and transportation equipment.  Terms are generally from one
to five years, with interest rates ranging from 12.0% to 13.0%.

  The Company has accounts and notes receivable due from employees which
primarily relate to employee stock purchase loans and employee housing
assistance programs.  The terms of the employee stock purchase loans
require interest payments of 6.0% per annum on the outstanding principal
balance and that all outstanding principal and interest be paid by
October 31, 1997.  Under the employee housing assistance program, the
Company is a guarantor on primary residential notes issued in conjunction
with the Company's relocation program for a fixed term of seven years
through October 1997.  In conjunction with the purchase of the Company (see
Note 12), the balance of accounts and notes receivable due from employees
was either repaid or forgiven.

  The Company, through its wholly-owned subsidiary Coast Gas, Inc., holds a
50% limited interest in Coast Energy Investments, Inc., a limited
partnership.  The partnership was established to facilitate the formation
of a trading fund and is accounted for under the equity method.  Coast Gas,
Inc. receives a management fee.

  Effective October 1, 1996, the Company terminated its participation and
interest in Coast Energy Investments, Inc.  The original partnership
agreement provided for a minimum investment term through December 1997.
The termination resulted in the sale of the Company's partnership interest
to its 50% partner and an employee of the partnership.  The Company
recorded a pretax loss on the disposition of the partnership interest of
$660,000.  This amount consisted of a $202,000 loss on the partnership
investment and $458,000 of termination costs consisting of salary,
consulting, noncompete agreements and other related expenses.

  Beginning on December 12, 1996, insurance coverage for CGI Holdings, Inc.
was provided by Cornerstone Propane Partners, L.P. (see Note 12).  The
coverage maintained was consistent with the coverage previously held by the
Company.


NOTE 3: PROPERTY AND EQUIPMENT

  LPG rental and storage tanks acquired under capital leases are pledged as
collateral under the capital lease agreements.  All assets of the Company
are pledged as collateral for the Company's long-term debt under the
provisions of the Credit Agreement (see Note 4).

  Depreciation expense for the four and one-half month period ended
December 16, 1996 and for the year ended July 31, 1996, totaled $1.0
million and $2.4 million, respectively.

NOTE 4: LONG-TERM DEBT

  During the year ended July 31, 1995, Coast Gas, Inc. entered into a
Credit Agreement (the 'Credit Agreement') with Bank of America, which
provided financing of up to $35.0 million, consisting of $15.0 million in
term debt and a $20.0 million revolving credit facility.  The revolving and
term loans, at the election of Coast Gas, Inc., bear interest at the Bank
of America prime rate plus 1.50% or Libor plus 2.75% per annum.
Concurrently, Coast Gas, Inc. issued $15.0 million in senior subordinated
notes with a fixed interest rate of 12.50% per annum.  The proceeds of the
subordinated notes and a portion of the proceeds available under the Credit
Agreement were used to repay the notes to Heller Financial, Inc.
('Heller').  The balance of the funds available under the Credit Agreement
('Working Capital Line') will be used for general corporate purposes and to
finance future acquisitions.

  The terms of the Credit Agreement were amended during the year ended July
31, 1996 to increase the Working Capital line by an additional $3.0
million.  An additional provision of the amendment requires that the
maximum amount of the facility is fixed at $23.0 million until May 1, 1997,
at which point it begins decreasing annually to $16.0 million by May 1,
2000 and matures on September 14, 2000.  Advances against the line used to
finance acquisitions were $0 and $3.0 million for the four and one-half
month period ended December 16, 1996 and the year ended July 31, 1996,
respectively.

  The terms of the Credit Agreement contain restrictions on the issuance of
new debt or liens, the purchase or sale of assets not in the ordinary
course of business and the declaration and payment of dividends, and
requires that Coast Gas, Inc. maintain specified levels of fixed charge and
interest payment coverage ratios.  The Credit Agreement also provides for
prepayment of excess funds in the event of sales of pledged assets if such
funds are not reinvested in like kind assets.  The Credit Agreement
provides for an unused commitment fee of .5% on funds not drawn against the
revolving line.

   Total interest paid during the four and one-half month period ended
December 16, 1996, was $1.6 million of which interest paid on bank long-
term and subordinated debt totaled $1.4 million.  Total interest paid
during the year ended July 31, 1996 was $5.4 million, of which interest
paid on bank long-term and subordinated debt totaled $4.4 million.

  Annual maturities of revolving, term and other long-term debt through
July 31, 2001, are as follows: 1997 - $2.9 million; 1998 - $3.5 million;
1999 - $3.9 million; 2000 - $4.4 million; 2001 - $13.3 million; and
thereafter - $15.1 million.  The subordinated notes amortize $5.0 million
per annum commencing in fiscal 2003.

  Debt issuance costs associated with the new subordinated, revolving and
term bank debt totaling $2.2 million are being amortized using the bonds
outstanding method over the life of the related loans.

  The carrying value of the Company's long-term debt approximates fair
value, in that most of the long-term debt is at floating market rates, or
incurred at rates that are not materially different from those current at
July 31, 1996.

  The Company has a Continuing Letter of Credit Agreement with Banque
Paribas to provide a $25.0 million credit guidance line for the operations
of Coast Energy Group, Inc., the Company's wholly owned subsidiary.  The
agreement provides for a compensating balance of $1.3 million, and grants
Banque Paribas a security interest in certain pledged accounts receivable
of CEG.


NOTE 5: MANDATORILY REDEEMABLE SECURITIES

  The Company has outstanding 62,500 shares of cumulative redeemable,
exchangeable preferred stock, with par value of $0.01 and stated value of
$100.  Cumulative dividends of 10% are payable annually.  Payment of
dividends is restricted under the terms of the Credit Agreement with Coast
Gas, Inc. (see Note 4).  Each share of preferred stock may be redeemed at a
price equal to stated value per share plus accrued and unpaid dividends.
The stock is also exchangeable, at the option of the Company, for Coast
Gas, Inc.'s subordinated exchange debentures due September 15, 2002 (see
Note 4).  The stock shall, with respect to dividend rights and rights on
liquidation, winding up and dissolution, rank senior to all classes of
common stock.  The Company shall redeem the stock in full at the earliest
of twelve consecutive years of unpaid dividends, sale or disposal of
substantially all the assets of the Company or merger of the Company,
subject to certain conditions.  No dividends have been declared or paid
since April 1, 1993.  Pursuant to the Stock Purchase and Merger Agreement
(see Note 11), no dividends were accrued after September 9, 1996.

NOTE 6: INCOME TAXES

  The income tax provision for the four and one-half month period ended
December 16, 1996 and for the year ended July 31, 1996 are summarized as
follows (in thousands of dollars):


                                      December 16,  July 31,
                                           1996       1996
                                           ----       ----
                                                    
Current provision:                                  
 Federal                              $       _       $    _
 State                                        _           25
                                        -------    ---------
                                              _           25
                                        -------    ---------
                                                    
Deferred provision (benefit):                       
 Federal                                  (632)        (428)
 State                                    (116)         (70)
                                        -------    ---------
                                          (748)        (498)
                                        -------    ---------
                                      $   (748)     $  (473)
                                     ==========    ==========

  A reconciliation of the Company's income tax provision computed at the
United States federal statutory rate to the effective rate for the recorded
provision for income taxes for the four and one-half month period ended
December 16, 1996 and for the year ended July 31, 1996 is as follows:

                                      December 16,  July 31,
                                          1996        1996
                                          ----        ----
                                                    
Federal statutory rate                    (34)%      (34)%
Amortization of cost in excess of                   
assets Acquired                             2          7
State franchise taxes, net of federal               
income tax benefit                         (5)         2
Prior year tax adjustments                  _         (5)
Other, net                                  2         (3)
                                          ----        ----
                                          (35)%      (33%)  
                                          ====        ====

  Tax payments during the four and one-half month period ended December 16,
1996 and for the year ended July 31, 1996 were minimal due to the
Company's tax loss position.  Payments were solely for state income taxes
in various states.

  As of July 31, 1996, the Company has a federal and state net operating
loss carryforward of approximately $20.0 million and $2.3 million,
respectively, available to reduce future payments of income tax
liabilities.  If not used, the tax benefits of these NOL carryforwards
expire during the period from 2006 to 2011.

  Under the provisions of Internal Revenue Code Section 382, the annual
utilization of the Company's net operating loss carryforwards may be
limited under certain circumstances.  Events which may affect utilization
include, but are not limited to, cumulative stock ownership changes of more
than 50% over a three-year period.  An ownership change occurred effective
March 31, 1993, due to cumulative changes in the Company's ownership.  The
annual and cumulative limits on the utilization of net operating losses
incurred prior to March 31, 1993 are approximately $1.6 million and $5.5
million, respectively.

  On December 17, 1996, a more than 50% ownership change occurred (see Note
12).  As a result, utilization of net operating losses incurred before that
date will be subject to an annual limitation.  Management believes the net
operating losses will be fully utilizable.


NOTE 7: LEASES

  Coast Gas, Inc. leases rental tanks and vehicles from a former owner of
the Company on a month-to-month operating lease.  The lease provides for
cancellation within 90 days, and includes a lease purchase option at the
greater of the original cost or current list price.  Coast Gas, Inc. also
leases real estate, LPG storage tanks, and office equipment from certain of
its current directors, officers and employees under operating and capital
lease agreements.

  Rental payments under such leases totaled $403,000 and $204,000 for the
four and one-half month period ended December 16, 1996 and for the year
ended July 31, 1996, respectively.

  Coast Gas, Inc. generally leases vehicles, computer equipment, office
equipment and real property under operating lease agreements.  The typical
equipment lease term is four to six years.  Real property leases generally
have terms in excess of ten years with renewal options.  Rent expense under
all operating lease agreements for the four and one-half month period ended
December 16, 1996 and for the year ended July 31, 1996 totaled $.9 million
and $2.5 million, respectively.

  Capital leases consist primarily of financing agreements for the
acquisition of LPG storage tanks with terms ranging from five to seven
years.  These leases provide fixed price purchase options at the end of the
noncancelable lease term.

  As of July 31, 1996, future minimum lease commitments under noncancelable
leases, with terms in excess of one year were as follows:

                                           I.          I.
                                           Operating   Capital
                                           II.  (In Thousands)    I
                                                                  I
                                                                  .
  Years Ended July 31,                                 
       1997                                $   2,020        $   1,624
       1998                                    1,495            1,336
       1999                                      991            1,150
       2000                                      753              885
       2001                                      679              113
                                           ---------         --------
Total minimum lease payments               $   5,938        $   5,108
                                           =========         ========
Less amounts representing interest                                755
Present value of future minimum lease                  
  payments                                                      4,353
Less amounts due within one year                                1,362
                                                             --------
                                                                            
                                                            $   2,991
                                                             ========

  Total assets acquired under capital leases totaled $0 and $1.2 million
for the four and one-half months ended December 16, 1996 and for the year
ended July 31, 1996, respectively.

  In addition to these minimum lease rentals, Coast Gas, Inc. has an
agreement to lease the assets of a retail LPG distributor at a fixed
percentage of the gross profits generated by the business.  Contingent
lease rents paid under this lease agreement for the four and one-half month
period ended December 16, 1996 and for the year ended July 31, 1996,
totaled $119,000 and $344,000, respectively.  The original lease term of
five years, which expired in 1995, was extended for five years and has
various renewal and purchase options available to Coast Gas, Inc. through
January 31, 2014.

  Coast Gas, Inc. subleases some of its LPG storage tanks and vehicles to
other propane distributors under non-cancelable operating lease agreements.
The lease terms are generally for one year with automatic renewal
provisions.  Additionally, these distributors may purchase the LPG storage
tanks under lease, at the greater of original cost or current list price.
Sublease income totaled $96,000 and $270,000 for the four and one-half
month period ended December 16, 1996 and for the year ended July 31, 1996,
respectively.


NOTE 8: STOCKHOLDERS' EQUITY

EMPLOYEE BENEFIT PLANS

  The Company has a 401(k) employee benefit plan.  All full-time employees
who have completed one year of service and are twenty-one years of age or
older are eligible to participate.  Under the plan provisions, participants
are allowed to make monthly contributions on a tax-deferred basis subject
to the limitations of the plan.  In addition, the Company will contribute a
discretionary matching contribution based upon participant contributions.
Employees are 100% vested for all contributions.  The plan is managed by a
trustee, and is fully funded.

  In 1990 the Company established a discretionary profit-sharing plan for
the benefit of all eligible full time employees.  Contributions are made
annually at the sole discretion of the Board of Directors.  Participant
benefits vest and are paid annually over a five-year period.  Unvested
contributions are forfeited upon termination of employment, and are
allocated to the remaining plan participants.  Contributions are unfunded
until the time of payment.  No amounts were accrued during the four and one-
half month period ended December 16, 1996 and the year ended July 31, 1996.

  Additionally, the Company provides certain health and life insurance
benefits to all eligible full time employees.  Expenses are recorded based
upon actual paid claims and expected liabilities for incurred but not
reported claims at year end.

WARRANTS

  In conjunction with the refinancing in fiscal 1995, the Company
repurchased 175,438 shares of common stock from officers of the Company for
$1.0 million.  Warrants in the Company were issued to senior subordinated
note holders which have been assigned an estimated fair value of $2.1
million, to be amortized over the life of the credit agreement using the
bonds outstanding method.  The warrants include 175,438 Series A Warrants
with an exercise price of $2.85 and 287,228 Series B Warrants with an
exercise price of $0.01.  The warrants are exercisable at the earliest of a
sale, acquisition or initial public offering, subject to certain
conditions, or September 15, 1997 into shares of the Company's Class D non-
voting common stock.

OPTIONS

  The Company has a 1987 stock plan available to grant incentive and
nonqualified stock options to officers and other employees.  The plan
provides for the granting of a maximum of 175,000 options to purchase
common shares of the Company.  The option price per share may not be less
than the fair market value of a share on the date the option is granted and
the maximum term of the option may not exceed 10 years.  Options granted
vest over a period of four years from the date of grant.  Granting of
options under this plan will expire on the 10th anniversary of the plan.
Pursuant to the Merger Agreement (see Note 11), each outstanding option
shall be converted into the right to receive cash whether or not such
option is exercisable in full.  Information regarding the Company's stock
option plan is summarized below:

                                  Options     Per Share Range
                                 --------    ---------------------
                                                       
Outstanding at July 31, 1996     174,973    $   0.01        $ 9.13
 Granted                               _               
 Exercised                             _               
 Canceled                              _               
                                  --------
                                                                         
Outstanding at December 16, 1996 174,973    $   0.01        $ 9.13
Available for grant at December      27               
16, 1996

  During 1996, the Company adopted a Stock Appreciation Rights (SARs) plan.
The Company granted 500,000 SARs, which are to vest over a five-year
period, at a per share value of $1.20.  Compensation expense related to the
grant of SARs of $45,000 and $120,000 was recorded for the four and one-
half month period ended December 16, 1996 and for the year ended July 31,
1996, respectively.


NOTE 9: COMMITMENTS AND CONTINGENCIES

  The Company has contracts with various suppliers to purchase a portion of
its supply needs of LPG for future deliveries with terms ranging from one
to twelve months.  The contracted quantities are not significant with
respect to the Company's anticipated total sales requirements and will
generally be acquired at prevailing market prices at the time of shipment.
Outstanding letters of credit issued in conjunction with product supply
contracts are a normal business requirement.

  The Company is engaged in certain legal actions related to the normal
conduct of business.  In the opinion of management, any possible liability
arising from such actions will be adequately covered by insurance or will
not have a material adverse effect on the Company's financial position or
results of operations.

NOTE 10: BUSINESS ACQUISITIONS

  During the year ended July 31, 1996, Coast Gas, Inc. acquired one retail
outlet in a transaction accounted for using the purchase method of
accounting.  The cost of the acquired company totaled $4.0 million,
including $1.0 million of seller notes and other liabilities and $3.0 from
the increase in the Company's Working Capital/Acquisition bank line.
Goodwill resulting from the acquisition totaled $2.8 million.  Revenues of
the acquired company for the year ended July 31, 1996, subsequent to the
dates of acquisition and included in the Company's consolidated sales
totaled $1.9 million.


NOTE 11: STOCK PURCHASE AND MERGER AGREEMENT

  Effective September 9, 1996, the Company and the preferred shareholders
of the Company entered into a Stock Purchase and Merger Agreement (the
'Merger Agreement') for the sale of the preferred stock of the Company for
$8.7 million.  The terms of the Agreement also provided an option to the
buyer of the preferred stock to acquire all of the outstanding common stock
of the Company, for a period of one year from the date of the sale of the
preferred stock.  Additionally, the shareholders of the Company have an
option to put the common stock of the Company to the buyer of the preferred
stock on April 30, 1997, if the buyer has not previously exercised the
option to acquire the common stock.  Subsequent to December 16, 1996, the
common stock of the company was purchased as described in Note 12.


NOTE 12: SUBSEQUENT EVENT

  On December 17, 1996, substantially all of the assets and liabilities of
the Company were contributed to Cornerstone Propane, L.P., a Delaware
limited partnership, a subsidiary of Cornerstone Propane Partners, L.P.
Following this transaction, on December 17, 1996, Cornerstone Propane
Partners, L.P. completed its initial public offering (see Note 1 to the
consolidated financial statements of Cornerstone Propane Partners, L.P.
included in this Form 10-K).

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To SYN Inc.:


  We have audited the accompanying consolidated statements of operations,
stockholder's equity and cash flows of SYN Inc.(a Delaware corporation and 
52.5%  owned subsidiary of Northwestern Public Service Company) and 
Subsidiaries as of June 30, 1996, and the related consolidated statements of
operations, stockholders' equity and cash flows for the period from inception 
(August 15, 1995) to June 30, 1996, and for the period from July 1, 1996 to
December 16, 1996.  These financial statements are the responsibility of the 
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

  In our opinion, the financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
SYN Inc. and Subsidiaries for the period from inception (August 15, 1995) to
June 30, 1996 and for the period from July 1, 1996 to December 16, 1996, in
conformity with generally accepted accounting principles.


                                        ARTHUR ANDERSEN LLP

Minneapolis, Minnesota,
August 4, 1997

CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands)



                                                        For the Period
                                           For the Period from Inception
                                             July 1, 1996  August 15, 1995
                                                  to         to
                                             December 16,    June 30,
                                              1996 1996
                                              ----------   --------------
1.   REVENUES                               $  44,066        $  96,092
2.                                                       
3.   COST OF PRODUCT SOLD                      23,322           46,187
                                              -------          -------
4.                                                       
5.   GROSS PROFIT                              20,744           49,875
                                              -------          -------
                                                         
1.   OPERATING EXPENSES                                  
 Salaries and commissions                       7,252           14,520
 General and administrative                     6,151           14,225
 Depreciation and amortization                  1,904            3,329
 Related-party corporate                                 
  administration and management fees            1,668            3,281
                                               ------           ------
   Total operating expenses                    16,975           35,355
                                               ------           ------
                                                         
1.   OPERATING INCOME                                    
                                                3,769           14,520
                                                         
1.   INTEREST EXPENSE, including                            
      $2,214 and $4,388 to related party        3,311            5,584
                                               ------           ------
1.                                                       
2.   INCOME BEFORE INCOME TAXES                   458            8,936
                                                         
PROVISION FOR INCOME TAXES                        298            3,675
                                               ------           ------
                                                         
NET INCOME                                       160             5,261
                                                         
1.   DIVIDENDS ON CUMULATIVE                             
     PREFERRED STOCK                          (3,878)           (7,260)
                                               ------            ------
                                                         
1.   NET LOSS APPLICABLE TO COMMON                       
     STOCKHOLDERS                           $ (3,718)        $  (1,999)
                                            =========        ==========

The accompanying notes are an integral part of these financial statements.
                                                         
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in Thousands, Except Share Amounts)

                                                               Total
              Preferred Stock   Common Stock    Additional  Stockholders'    
              ---------------   ------------     Paid-In    Accumulated
               Shares  Amount   Shares   Amount  Capital  Deficit Equity
               ------  ------   ------   ------ --------  ------- -------
                                                         
                                                         
BALANCE AT                                               
INCEPTION,
AUGUST 15, 1995  _    $    _         _   $    _  $     _  $    _  $     _

Common Stock 
issued           _         _       100,000     1       99       _      100
                                
Preferred                                                      
stock issued  55,312    55,312        _       _       _        _    55,312

Dividends on                                                   
preferred                                                     
stock,
$131.25 per                                                   
share            _         _          _       _       _    (7,260) (7,260)

Net income       _         _          _       _       _     5,261   5,261
             ------    ------     ------  ------  ------    ------  ------
                                                                 
BALANCE,                                                         
             55,312    55,312     100,000      1      99    (1,999) 53,413
JUNE 30, 1996                                                   

Dividends on                                                   
preferred 
stock, $70.11
per share         _        _           _       _      _    (3,878)  (3,878)

  Net income      _        _           _       _      _       160      160
              ------   ------      ------  ------ ------    ------   ------
                                                                 
BALANCE,                                                         
DECEMBER 16,                                                 
 1996         55,312  $ 55,312    $100,000 $    1 $  99   $(5,717    49,695
              ======   ======     ======== ====== ======  =======   =======

  CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In Thousands)

                                                             For the Period
                                            For the Period   from Inception
                                             July 1, 1996     August 15, to
                                         1995 to December 16,   June 30,
                                                 1996             1996
                                             ------------     ------------
CASH FLOWS FROM OPERATING ACTIVITIES                         
 Net income                                   $    160         $  5,261
 Adjustments to reconcile net income to                      
  net cash from operating activities:                                      
   Depreciation and amortization                 1,904            3,329
   Gain on sale of assets                          233                _
   Deferred income tax benefit                     298            3,624
   Changes in assets and liabilities,                        
   net of effect of acquisitions
     Trade receivables                          (1,991)          (1,247)
     Inventories                                (1,873)             704
     Prepaid expenses                             (569)             189
     Accounts payable                            2,549           (5,571)
     Accrued expenses                            3,602           (3,423)
                                                ------            ------
      Net cash provided by operating                         
      activities                                 4,313             2,866
                                                ------            ------
                                                             
CASH FLOWS FROM INVESTING ACTIVITIES                         
 Acquisition of assets of Synergy Group                 
   Incorporated                                     _            (150,922)
 Proceeds from the sale of certain                           
   Synergy Group Incorporated assets to
   Empire Energy Corporation                        _              35,980
 Expenditures for property and                               
   equipment                                   (4,240)             (9,182)
 Proceeds from sale of assets                     129                 474
 Proceeds from disposal of companies              829                   _
 Acquisitions, net of cash received              (469)                  _
 Decrease in investments and restricted                    
  cash deposits                                     _                  70
                                               -------             -------
  Net cash used in investing activities        (3,751)           (123,580)
                                               -------           ---------
                                                             
CASH FLOWS FROM FINANCING ACTIVITIES                         
 Borrowings on credit facility                 20,367                   _
 Payments on credit facility                  (16,532)                  _
 Borrowing under long-term debt                                
   agreements                                      _               23,910
 Proceeds from issuance of common stock            _                  100
 Proceeds from issuance of preferred stock         _               52,812
 Proceeds from issuance of note
   payable-related party                           _               52,812
 Borrowings from related party                     _               36,458
 Repayments to related party                       _              (36,458)
 Payment on long-term debt agreements           (242)              (1,834)
 Preferred stock dividends paid               (3,878)              (7,072)
                                              -------             --------
  Net cash provided by (used in)                         
    financing activities                        (285)             120,728
                                               -------             -------
                                                            
INCREASE IN CASH                                 277                   14
CASH, BEGINNING OF PERIOD                         14                    _
                                               ------               ------
                                                   -                    -
CASH, END OF PERIOD                           $   291       $          14
                                              =======              =======

The accompanying notes are and integral part of these financial statements.


NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS

  SYN Inc. (Synergy) is engaged in the retail sale of liquid propane gas
primarily in the Southern, Midwest and Eastern regions of the United
States.  Most of Synergy's customers use propane for residential home
heating and make periodic purchases with cash or on credit. Synergy was
formed to acquire Synergy Group Incorporated (SGI).

SYNERGY ACQUISITION

  On August 15, 1995, Synergy acquired the common stock of SGI, a retail
distributor of propane with 152 locations, for approximately $151 million.
In conjunction with the acquisition, Synergy sold 38 of the retail
locations to Empire Energy Corporation (Empire Energy) for approximately
$36 million cash and the assets of nine retail locations valued at $2
million. There was no gain or loss recognized on this sale.

  The total net purchase price paid by Synergy for the acquisition of SGI
consisted of $105.6 million in cash (which was provided by proceeds from
the issuance of $52.8 million of preferred stock and the issuance of $52.8
million of debt), $1.25 million in long-term debt and the assumption of
certain liabilities. The acquisition was accounted for under the purchase
method of accounting with all tangible assets and liabilities acquired
recorded at fair value at date of acquisition and the cost in excess of
such fair value of $32.5 million recorded as an intangible asset.  

  The purchase price is subject to adjustment based on the amount of
working capital acquired by Synergy. Synergy has made a claim against the
former owners of SGI (the Former Stockholders) for a working capital
adjustment and has recorded a receivable of $26.7 million, which reflects
the reduction in purchase price of the assets based on the amount of
working capital acquired. The purchase price is also subject to adjustment
based on the value of customer tanks which cannot be located within a
specified period of time. Synergy has made a claim against the Former
Stockholders for the value of unlocated tanks and has recorded a receivable
for $11.3 million related to this claim. 
 
  These amounts receivable in connection with the acquisition of SGI are
management's best estimate of the amounts which will ultimately be due from
the Former Stockholders. However, the parties continue to negotiate final
settlement and the Former Stockholders have objected to a number of the
claims made by Synergy. An adjustment of the consideration paid for SGI
could also result in an adjustment in the amount of consideration received
from Empire Energy.   Subsequent to June 30, 1996 a settlement has been reached
with the former owners of SGI (The Former Stockholders) for a reduction in
purchase price of $5 million as an adjustment of working capital.

PRINCIPLES OF CONSOLIDATION

  The consolidated financial statements include the accounts of Synergy and
its subsidiaries. All significant intercompany transactions and balances
have been eliminated in consolidation.

USE OF ESIMATES

  The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the period.  Significant estimates related to self-insurance,
litigation, collectibility of receivables and income tax assessments are
discussed in Notes 6 and 7.  Actual results could differ from those
estimates.

REVENUE RECOGNITION POLICY

  Revenue from propane sales and the related cost of product sold are
recognized upon delivery of the product.

INVENTORIES

  Inventories are valued at the lower of cost or market. Cost is determined
by the first-in, first-out method for retail operations inventory and by
the specific identification method for wholesale operations inventory.


NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)


PROPERTY AND EQUIPMENT

  For financial reporting purposes, property and equipment are stated at
acquisition cost. Repairs and maintenance costs which do not significantly
extend the useful lives of the respective assets are charged to operations
as incurred. Depreciation is computed using the straight-line method over
the following estimated useful lives of the assets:

           Buildings                                 40 years
           Storage and consumer service facilities   35-40 years
           Transportation, office and other equipment 5-10 years

INTANGIBLE ASSETS

  The excess of cost over the fair value of the net acquired assets of SGI
has been recorded as an intangible asset and is being amortized on a
straight-line basis over 40 years. Costs related to arranging the debt
financing for the acquisition of SGI have been capitalized and are being
amortized on a straight-line basis over the two-year term of the debt.

  It is Synergy's policy to review long-lived assets including intangible
assets whenever events or changes in circumstances indicate that the
carrying amount of such assets may not be recoverable.  If such a review
should indicate that the carrying amount of intangible assets is not
recoverable, it is Synergy's policy to reduce the carrying amount of such
assets to fair value.

INCOME TAXES

  Deferred tax liabilities and assets are recognized for the tax effects of
differences between the financial statement and tax bases of assets and
liabilities. A valuation allowance is established to reduce deferred tax
assets if it is more likely than not that a deferred asset will not be
realized.


NOTE 2: RELATED-PARTY TRANSACTIONS

  Synergy entered into a Management Service Agreement with Empire Gas
Corporation (Empire Gas), a 30% common stockholder of Synergy, under which 
Empire Gas provides all management services to Synergy for payment of an
annual overhead reimbursement of $3.25 million, and a management fee of
$500,000 plus a performance-based payment for certain operating results.  
Amounts paid at June 30, 1996, and December 16, 1996, were $3.28 million and 
$1.73 million.

  During the period ended December 16, 1996, and the period ended June 30,
1996, Synergy purchased $20.5 and $42 million, respectively, of liquid
propane gas from Empire Gas.

  During the period ended June 30, 1996, Synergy transferred real and
personal property of three retail locations valued at $1,615,000 to Empire
Gas in exchange for four Empire Gas retail locations valued at
approximately $1,713,000, the value difference of $98,000 paid to Empire
Gas in cash.

  Synergy paid $6,343,000 during the period ended June 30, 1996, to the
controlling stockholder of Synergy and $1,103,000 to Empire Gas for
reimbursement of costs incurred relating to the acquisition of SGI.

  During the period ended June 30, 1996, Synergy leased, under operating
leases, transportation equipment to Propane Resources Transportation, Inc.
in which Synergy owns a 15% common stock interest. Synergy received
$274,000 in lease income during the period ended June 30, 1996, from these
leases.


NOTE 3: OPERATING LEASES

  Synergy leases retail location sales offices under noncancelable
operating leases expiring at various times through 2006. These leases
generally contain renewal options and require Synergy to pay all executory
costs (property taxes, maintenance and insurance).

  Scheduled future minimum lease payments (in thousands) at June 30, 1996, 
were:

1997      $     598
1998            310
1999            206
2000             41
2001             19
Thereafter       53
             ------
          $   1,227
           ========

  Lease expense during the five and one-half months ended December 16,
1996, and the period ended June 30, 1996, was approximately $320,000 and
$600,000.


NOTE 4: INCOME TAXES

  The provision for income taxes includes the following components (in
thousands):

                                                      For the
                                                       Period
                                           For the      from
                                            Period   Inception
                                           July 1,  (August 15, 
                                             1996      1995)
                                              to         to
                                         December 16, June 30,
                                             1996       1996
                                           -------------------

Taxes currently payable                 $      _     $    51
Deferred income taxes                        298       3,624
                                         -------       -----
                                        $    298     $ 3,675
                                        =========    =======

  A reconciliation of income tax expense at the statutory rate to the
actual income tax expense is as follows (in thousands):

                                                      For the
                                                       Period
                                           For the      from
                                            Period   Inception
                                           July 1,  (August 15,
                                             1996      1995)
                                              to         to
                                         December 16, June 30,
                                             1996        1996
                                            ------     -----
                                                   
Taxes computed at statutory rate (34%)  $    156        $ 3,038
Amortization of excess of cost over                
fair value of net assets acquired            126            157
State income taxes, net of federal tax                         
  benefit                                     18            378
Other                                         (2)           102    
                                         --------       -------
                                                   
Actual tax provision                    $    298        $ 3,675
                                        =========       =======

  At June 30, 1996, Synergy had approximately $20 million of net operating
loss carryforwards for tax reporting purposes expiring in varying amounts
from 2007 through 2010. These net operating loss carryforwards have been
reflected in the financial statements as deferred income tax assets at June
30, 1996 and are subject to certain limitations on utilization under
provisions of the Internal Revenue Code.


NOTE 5: COMMITMENTS AND CONTINGENCIES

SELF INSURANCE

  Synergy obtains insurance coverage for catastrophic exposures related to
comprehensive general liability, vehicle liability and workers'
compensation, as well as those risks required to be insured by law or
contract. Synergy self-insures the first $250,000 of coverage per incident
and obtains excess coverage from carriers for these programs.

  Provisions for self-insured losses are recorded based upon Synergy's
estimates of the aggregate self-insured liability for claims incurred.
Synergy has provided letters of credit aggregating approximately $2.875
million in connection with these programs.

  Synergy self-insures for health benefits provided to its employees.
Provisions for losses expected under this program are recorded based upon
Synergy's estimate of the aggregate liability for claims incurred.

CONTINGENCIES

  Synergy and the acquired operations of SGI are presently involved in
various federal and state tax audits and are also defendants in other
business-related lawsuits which are not expected to have a material adverse
effect on Synergy's financial position or results of operations.

  In conjunction with the acquisition of SGI, the Former Stockholders of
SGI are contractually liable for all insurance claims and tax liabilities
that relate to periods prior to the acquisition date. Funds have been
placed in escrow accounts to provide for payment of these liabilities. In
the event that the escrow amount is insufficient to settle these
liabilities, Synergy could be obligated to fund any additional amounts due
and would have to seek reimbursement from the Former Stockholders for such
amounts. Synergy has recorded its best estimates of the ultimate
liabilities expected to arise from these matters and has made claims
against the Former Stockholders for reimbursement (see Note 1).


NOTE 6: EMPLOYEE BENEFIT PLAN

  Synergy succeeded to the SGI-sponsored defined contribution retirement
plan covering substantially all salaried employees. Employees who elect to
participate may contribute a percentage of their salaries to the plan and
Synergy at its discretion may match a portion of the employee contribution.
Synergy may also make profit-sharing contributions to the plan at the
discretion of its Board of Directors. Synergy made no profit-sharing
contributions to the plan during the period July 1, 1996 to December 16,
1996, and the period from inception (August 15, 1995) to June 30, 1996.

  The plan is currently under audit by the U.S. Department of Labor (DOL),
which has alleged that the plan violated certain sections of the Employee
Retirement Income Security Act of 1974. However, the DOL has advised that
it is not contemplating current action regarding these violations. The DOL
audit is continuing and the outcome cannot be determined at this time. In
the event the Former Stockholders are unable to satisfy any liabilities
resulting from the above examination, Synergy could be obligated to fund
these liabilities and seek reimbursement from the Former Stockholders.
Synergy has recorded its best estimates of the ultimate liabilities
expected to arise from these matters and has made claims against the Former
Stockholders for reimbursement (see Note 1).


NOTE 7: ADDITIONAL CASH FLOW INFORMATION (In Thousands)

                                                      For the
                                                       Period
                                           For the      from
                                            Period   Inception
                                           July 1,  (August 15,
                                             1996      1995)
                                              to         to
                                         December 16, June 30,
                                             1996       1996
                                         --------------------
Assets acquired through issuance of:               
 Long-term debt                         $  1,468        $  2,250
 Preferred stock                               _           2,500
                                                   
Additional cash payment information:               
 Interest paid                             3,339           5,535
 Income taxes paid                           190           2,284

NOTE 8: SUBSEQUENT EVENT

 On December 17, 1996, substantially all of the assets and liabilities of
the Company were contributed to Cornerstone Propane, L.P., a Delaware
limited partnership, a subsidiary of Cornerstone Propane Partners, L.P.
Following this transaction, on December 17, 1996, Cornerstone Propane
Partners, L.P. completed its initial public offering (see Note 1 to the
consolidated financial statements of Cornerstone Propane Partners, L.P. for
the period ended June 30, 1997, included in this form 10-K.)

INDEPENDENT ACCOUNTANT'S REPORT


Board of Directors and Stockholders
Northwestern Growth Corporation
Huron, South Dakota


  We have audited the accompanying consolidated statements of operations,
stockholders' equity (deficit) and cash flows of SYNERGY GROUP INCORPORATED
for the period ended August 14, 1995.  These financial statements are the
responsibility of the Company's management.  Our responsibility is to
express an opinion on these financial statements based on our audit.

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

  In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and
cash flows of SYNERGY GROUP INCORPORATED for the period ended August 14,
1995, in conformity with generally accepted accounting principles.


BAIRD, KURTZ & DOBSON



Springfield, Missouri
October 9, 1996


CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE FOUR AND ONE-HALF MONTHS
ENDED AUGUST 14, 1995
 (In Thousands)



                                                     For the
                                                     Four and
                                                     One-Half
                                                     Months
                                                     Ended
                                                     August
                                                     14, 1995
                                                     --------
                                                     
1.   OPERATING REVENUE                               $32,179
                                                     
1.   COST OF PRODUCT SOLD                            
                                                      15,387
                                                      ------
2.                                                   
                                                      16,792
                                                      ------
                                                     
1.   OPERATING COSTS AND EXPENSES                    
 Provision for doubtful accounts                         926
 General and administrative                           20,681
 Depreciation and amortization                         1,845
                                                      ------
   Total operating expenses                           23,452
                                                      ------
                                                     
   Operating loss                                     (6,660)
                                                      ------
1.                                                   
2.   OTHER INCOME (EXPENSE)                          
3.        Interest expense                           (2,436)
4.        Related-party interest expense               (787)
 Other income                                           101
                                                     ------
                                                     (3,122)
                                                     ------
                                                     
LOSS BEFORE INCOME TAXES                             (9,782)
                                                     
PROVISION FOR INCOME TAXES                               31
                                                     ------
                                                     
NET LOSS                                            $ (9,813)
                                                     =======
  
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)

FOR THE FOUR AND ONE-HALF MONTHS
ENDED AUGUST 14, 1995
(Dollars in Thousands)



                     Series A Series B Class A Class B Additional Retained Stock
                    Preferred Preferred Common Common   Paid-in  Earnings holder
                      Stock      Stock   Stock  Stock    Capital          Equity
                    ---------  --------- ----- -------   ------- -------- -----
                    (Deficit)   (Deficit)
                    ---------  ---------
                                                                    
BALANCE, MARCH 31, 
1995                  $25,000  $16,700  $  1  $  40   $11,378 $(68,882) (15,763)
                                
NET LOSS                    _         _     _       _        _   (9,813) (9,813)
                      --------  -------- ------ ------ -------  -------- ------
                                                                    
BALANCE, AUGUST 14,
1995                   $25,00   $16,700  $  1   $  40  $11,378 $(78,695)(25,576)
                      =======   =======  =====  ====== ======= ========= =======


(a)  CONSOLIDATED STATEMENT OF CASH FLOWS
  
FOR THE FOUR AND ONE-HALF MONTHS
ENDED AUGUST 14, 1995
 (In Thousands)


                                                     For the
                                                     Four and
                                                     One-Half
                                                     Months
                                                     Ended
                                                     August
                                                     14, 1995
                                                     --------
h)   CASH FLOWS FROM OPERATING                       
 ACTIVITIES                                          
  Net loss                                         $ (9,813)
   Items not requiring (providing) cash:             
     Depreciation                                     1,770
     Amortization                                        75
     Gain on sale of assets                             (61)
  Changes in:                                        
   Trade receivables                                  5,139
   Inventories                                        1,251
   Accounts payable and accrued expenses              3,591
   Prepaid expenses and other                           764
                                                     ------
   Net cash provided by operating Activities          2,716
                                                     ------
                                                     
CASH FLOWS FROM INVESTING                            
 ACTIVITIES                                          
  Proceeds from sale of assets                         104
  Purchase of property and equipment                  (596)
  Change in restricted cash deposits                  (615)
                                                     ------
     Net cash used in investing  activities         (1,107)
                                                     ------
                                                 
CASH FLOWS FROM FINANCING ACTIVITIES                 
  Payments on long-term debt                          (108)
  Decrease in credit facilities                     (1,000)
                                                    -------
  Net cash used in financing activities             (1,108)
                                                    -------
                                                     
INCREASE  IN CASH                                      501
                                                     
CASH, BEGINNING OF PERIOD                            1,246
                                                   -------
                                                     
CASH, END OF PERIOD                                $ 1,747
                                                   =======
                                                     
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT
        ACCOUNTING POLICIES

NATURE OF OPERATIONS

  Synergy Group Incorporated (the Company) is engaged primarily in the
retail sale of liquid propane gas through its branch offices located in the
Northeast, Mid-Atlantic, Southeast and South-central regions of the United
States.  Most of the Company's customers use propane for residential home
heating and make periodic purchases with cash or on credit.

USE OF ESTIMATES

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

PRINCIPLES OF CONSOLIDATION

  The consolidated financial statements include the accounts of Synergy
Group Incorporated and its subsidiaries.  All significant intercompany
balances have been eliminated in consolidation.

REVENUE RECOGNITION POLICY

  Sales and related cost of product sold are recognized upon delivery of
the product or service.

INVENTORIES

  Inventories are valued at the lower of cost or market.  Cost is
determined by the last-in, first-out (LIFO) method for propane and the
first-in, first-out (FIFO) method for all others.


PROPERTY AND EQUIPMENT

  Depreciation is provided on all property and equipment primarily by the
straight-line method over the estimated useful lives of 3 to 30 years.

INCOME TAXES

  Deferred tax liabilities and assets are recognized for the tax effects of
differences between the financial statement and tax bases of assets and
liabilities.  A valuation allowance is established to reduce deferred tax
assets if it is more likely than not that a deferred tax asset will not be
realized.

AMORTIZATION

  The excess of current fair value over cost of net assets acquired is
being amortized on the straight-line basis over 40 years.

CASH EQUIVALENTS

  The Company considers all liquid investments with original maturities of
three months or less to be cash equivalents.


NOTE 2: SALE OF THE COMPANY

  On August 15, 1995, the Company was acquired by SYN Inc. which is
majority owned by Northwestern Growth Corporation, a wholly owned
subsidiary of Northwestern Public Service Company.  The acquisition cost
was approximately $151 million and included the redemption of the Senior
Secured Notes at par value and the repayment of the Company's existing
revolving credit facility.  As a result of the above sale the financial
statements reflect operations for the four and one-half month period ended
August 14, 1995.

NOTE 3: DEBT RESTRUCTURING

  On September 2, 1993, the Company and a committee of holders of the
Company's 11 5/8% Senior Subordinated Notes due 1997 (the 11 5/8% Notes)
announced that they had reached agreement on the major issues to
restructure the Company's outstanding debt and on August 23, 1994, the
Company completed the restructuring.  The agreement contemplated that
certain related parties to the Company exchange $41,700,000 in debt for
Series A Preferred Stock and Series B Preferred Stock (the
Recapitalization).  This amount included $16,700,000 in 90-day unsecured
promissory notes and $25,000,000 of 11 5/8% Notes (see Note 4).  The
remaining 11 5/8% Notes plus accrued interest through September 14, 1993,
were proposed to be exchanged (the Exchange Offer) for new Increasing Rate
Senior Secured Notes due 2000 (the Senior Secured Notes).


NOTE 4: NOTES PAYABLE

 Long-term debt consists of the following:

                                                      August 14,
                                                         1995
                                                      ----------
                                                      (In Thousands)
                                                      
11 5/8% Senior subordinated notes due                  
1997 (A)                                             $  1,700
Increasing rate senior secured notes due              
2000 (A)                                               65,054
Revolving credit facility (B)                          22,100
Purchase contract obligations (C)                         687
                                                      -------  
                                                       89,541
 Less current maturities                               89,104
                                                      -------
                                                      
                                                    $    437
                                                      =======

(A)  On April 2, 1987, the Company sold $85,000,000 of 11 5/8% Notes in a
   public offering.  On March 15, 1993, September 15, 1993, and March 15,
   1994, the Company failed to make the required $4,941,000 interest payments
   due on each of such dates on the 11 5/8% Notes.  Under the terms of the
   Indenture to the 11 5/8% Notes, the failure to pay such interest
   constituted an Event of Default.

   On August 23, 1994, the Company completed the Exchange Offer and
   Recapitalization (see Note 3).  The 11 5/8% Notes not tendered in the
   Exchange Offer, amounting to $1,700,000, remain outstanding at August
   14, 1995.
   
(B)  In August 1989, the Company entered into a revolving credit agreement
   with a bank under which the maximum credit line available is $20,000,000.
   On September 14, 1990, the bank was repaid by a related party to the
   Company and the credit agreement was assigned by the bank to the related
   party.  The credit agreement contains certain restrictive covenants.
   Borrowings under the credit facility are secured by cash, accounts
   receivable and inventory.  Interest based on the prime rate plus 1 1/2% is
   payable quarterly.  The amount outstanding under the facility was not
   repaid by the Company on the maturity date of April 1, 1993.  The failure
   to repay the facility constituted an Event of Default.  In November 1993
   the maximum credit line available under the facility was increased to
   $25,000,000 with advances in excess of $20,000,000 at the discretion of the
   related party.  The maturity date of the revolving credit agreement was
   extended to September 30, 1996.

(C)  Purchase contract obligations arise from the purchase of operating
   businesses or other assets and are collateralized by the respective assets
   acquired.  At August 14, 1995, these obligations carried interest rates
   from 8% to 14.5% and are due periodically through 1999.

NOTE 5: OPERATING LEASES

  The Company leases certain property and equipment under lease agreements
expiring through 2011.  At August 14, 1995, future minimum lease payments
under noncancellable operating leases are as follows:

1996      $     907
1997            971
1998            402
1999            238
2000            191
           --------
          $   2,709
          =========

  Rent charged to operations including rental expense to related parties
(see Note 6) for the period ended August 14, 1995, was $929,000.


NOTE 6: RELATED PARTY TRANSACTIONS

  The Company leases certain property and equipment from related parties
under operating lease agreements.  Rental expense for the period ended
August 14, 1995, was $318,000.

  For the period ended August 14, 1995, interest expense related to the
Company's revolving credit facility from a related party (see Note 4)
amounted to $787,000, respectively.

NOTE 7: INCOME TAXES

  The provision for income taxes includes these components (in thousands):

                                                       August 14,
                                                           1995
                                                       -----------
                                                       (In Thousands)
                                                       
Taxes currently payable                                $      31
Deferred income taxes                                          _
                                                        ----------
                                                       $      31
                                                       ===========

  A reconciliation of income tax expense at the statutory rate to the
Company's actual income tax expense is shown below:

                                                       August 14,
                                                          1995
                                                       -----------
                                                       (In Thousands)
                                                       
Computed at the statutory rate (34%)                   $ (3,326)
Increase resulting from:                               
 Amortization of excess cost over fair                 
 value of net assets acquired                                 9
 State income taxes - net of federal tax                     
  benefit                                                    31
 Change in deferred tax asset valuation                   
 allowance                                                3,310
 Other                                                        7
                                                       --------
Actual tax provision                                   $     31
                                                       ========

  The Company estimates that as of August 14, 1995, it has available net
operating loss carryforwards of approximately $94.6 million to offset
future taxable income.

NOTE 8: EMPLOYEE BENEFIT PLAN

  The Company sponsors a defined contribution retirement plan covering
substantially all salaried employees.  Employees who elect to participate
may contribute a percentage of their salaries to the plan, and the Company
at its discretion may match a portion of the employee contribution.  The
Company may also make profit-sharing contributions to the plan at the
discretion of its Board of Directors.  Contribution expense amounted to
$37,000 for the period ended August 14, 1995.

  The plan is currently under audit by the U.S. Department of Labor (DOL),
which has notified the Company that the prior Plan Trustees engaged in
prohibited transactions.  The DOL audit is continuing and the outcome
cannot be determined at this time.  In addition, the Internal Revenue
Service has been notified of prohibited transactions.  The Company believes
that it may be subject to excise taxes, penalties and interest in
connection with these prohibited transactions and has recorded its best
estimates of the potential liabilities expected to arise from these
matters.


NOTE 9: SELF-INSURANCE AND LITIGATION CONTINGENCIES

  Under the Company's insurance program, coverage for comprehensive general
liability, workers' compensation and vehicle liability was obtained for
catastrophic exposures as well as those risks required to be insured by law
or contract.  The Company retains a significant portion of certain expected
losses related primarily to comprehensive general liability.  Under this
insurance program, the Company self-insures the first $250,000 of coverage
(per incident).  The Company obtained excess coverage from carriers for
this program.  The Company self-insures health benefits provided to
employees of the Company and its subsidiaries.

  Provisions for losses expected under these programs are recorded based
upon the Company's estimates of the aggregate liability for claims
incurred.  The Company provides letters of credit aggregating $2,875,000 in
connection with these programs which are collateralized with restricted
cash deposits.

NOTE 9: SELF-INSURANCE AND LITIGATION CONTINGENCIES (Continued)

  At August 14, 1995, the self-insured liability accrued in the balance
sheet totaled $4,160,000, which includes $500,000 of incurred but not
reported claims.  The Company and its subsidiaries are presently defendants
in various lawsuits related to the self-insurance program and other
business-related lawsuits which are not expected to have a material adverse
effect on the Company's results of operations.


NOTE 10:  ADDITIONAL CASH FLOW INFORMATION

                                                     August 14,
                                                       1995
                                                     -----------
                                                     (In Thousands)
Additional Cash Payment Information                  
-----------------------------------
 Interest paid                                       $  1,146
 Income taxes paid                                         15


NOTE 11:  FUTURE ACCOUNTING PRONOUNCEMENTS

IMPACT OF SFAS NO. 121

  In 1995 the Financial Accounting Standards Board adopted Statement of
Financial Accounting Standards (SFAS) No. 121, 'Accounting for the
Impairment of Long-Lived Assets and for the Impairment of Long-Lived Assets
to be Disposed of.'  The Company must adopt this standard effective April
1, 1996.  The Company does not expect that the adoption of this standard
will have a material impact on its financial position or results of
operations.


NOTE 12:  SIGNIFICANT ESTIMATES AND CONCENTRATIONS

  Generally accepted accounting principles require disclosure of certain
significant estimates and current vulnerabilities due to certain
concentrations.  Those matters include the following:


DEPENDENCE ON PRINCIPAL SUPPLIERS

  Three suppliers, Chevron, Texaco and Powder Horn Petroleum, account for
approximately 55% of the Company's volume of propane purchases.  Although
the Company believes that alternative sources of propane are readily
available, in the event that the Company is unable to obtain alternate
sources of supply at competitive prices and on a timely basis, such
inability would have a material, adverse effect on the Company.

ESTIMATES

  Significant estimates related to tax liabilities, self-insurance and
litigation are discussed in Notes 8 and 9.  Actual losses related to these
items could vary materially from amounts reflected in the financial
statements.

EXHIBIT 21.1 

LIST OF SUBSIDIARIES

NAME OF SUBSIDIARIES

Cornerstone Sales & Services Corporation, a Delaware Corporation
Cornerstone Propane, L.P., a Delaware limited partnership
Flame, Inc., an Arizona Corporation


EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation by 
reference of our report dated August 4, 1997 in the Registration Statements of
Cornerstone Propane Partners, L.P. incorporated by reference in this Annual 
report on the Form 10-K.  We also consent to all references to our firm 
included in this Annual Report on Form 10-K.

                                                ARTHUR ANDERSEN LLP  

Minneapolis, Minnesota
September 25, 1998


EXHIBIT 23.2

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the incorporation by reference in the Registration Statements of
the  of Cornerstone Propane Partners, L.P., of our report dated August 4, 1997,
relating to the Financial Statements of EMPIRE ENERGY CORPORATION and our 
report dated October 9, 1996, relating to the financial Statements of SYNERGY
GROUP INCORPORATED apearring in the 1998 Cornerstone Propane Partners, L.P. 
Form 10-K.  

                                                Baird, Kurtz and Dobson

September 25, 1998
Springfield, Missouri


EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Prospectus 
constituting part of the Registration Statements on Form S-3 (No. 333-60931),
Form S-4 (No. 333-46343) and Form S-8 (No. 333-40815) of Cornerstone Propane
Partners, L.P., of our report date August 8, 1997 relating to the consolidated
financial statements of CGI Holdings, Inc. appearing in the Cornerstone Propane
Partners L.P.'s Annual Report on Form 10-K.

                                               ProcewaterhouseCooper, LLP

San Francisco, California
September 28, 1998     


EXHIBIT 27