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United States Securities and Exchange CommissionWashington, D.C. 20549

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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, 2001
Commission file Number 1-12499

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CORNERSTONE PROPANE PARTNERS, L.P.(Exact Name of Registrant as Specified in Its Charter)

Delaware(State or other jurisdiction of Incorporation or Organization)

77-0439862(IRS Employer Identification No.)432 Westridge Drive, Watsonville, California(Address of Principal Executive Offices)

95076(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. ( )

The
aggregate market value of the 16,880,969 Common Units held by nonaffiliates of the Registrant as of the close of business on October 5, 2001, is: $117,322,735.

Documents
Incorporated by Reference None

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Cornerstone Propane Partners, L.P.

Index

|         |  |                                                                                                                                                                                             |  | Page
|-------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|Part I   |  |                                                                                                                                                                                             |  |     
|Item 1.  |  | Business                                                                                                                                                                                    |  | 3   
|Item 2.  |  | Properties                                                                                                                                                                                  |  | 7   
|Item 3.  |  | Legal Proceedings                                                                                                                                                                           |  | 8   
|Item 4.  |  | Submission of Matters to a Vote of Unitholders                                                                                                                                              |  | 9   
|Part II  |  |                                                                                                                                                                                            
|Item 5.  |  | Market for Registrant's Common Equity and Related Unitholder Matters                                                                                                                        |  | 10  
|Item 6.  |  | Selected Financial Data                                                                                                                                                                     |  | 11  
|Item 7.  |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                                                                                                       |  | 13  
|Item 8.  |  | Financial Statements and Supplementary Data                                                                                                                                                 |  | 18  
|Item 9.  |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                                                                                                        |  | 18  
|Part III |  |                                                                                                                                                                                            
|Item 10. |  | Directors and Executive Officers of the Registrant                                                                                                                                          |  | 19  
|Item 11. |  | Executive Compensation                                                                                                                                                                      |  | 20  
|Item 12. |  | Security Ownership of Certain Beneficial Owners and Management, Ownership of Partnership Units by the General Partners and Directors and Executive Officers of the Managing General Partner |  | 26  
|Item 13. |  | Certain Relationships and Related Party Transactions                                                                                                                                        |  | 26  
|Part IV  |  |                                                                                                                                                                                            
|Item 14. |  | Exhibits, Financial Statement Schedules, and Reports on Form 8-K                                                                                                                            |  | 28  

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Part I

Item 1. Business.

General

Cornerstone Propane Partners, L.P. ("Cornerstone Partners"), and its subsidiary, Cornerstone Propane, L.P. (the "Operating 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 affiliates are referred to collectively herein as the "Partnership."

The
Partnership believes that it is the fifth largest retail marketer of propane in the United States in terms of volume, serving more than 470,000 residential, commercial, industrial
and agricultural customers from over 260 customer service centers in 34 states as of June 30, 2001. The Partnership's operations are concentrated in the east, south, central and west coast
regions of the United States. During the year ended June 30, 2001, the Partnership had retail propane sales of approximately 275 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 to suppliers and other end users of propane, other natural gas liquids, natural gas 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 retail revenue, have provided a relatively stable source of revenue for the Partnership. Based on fiscal 2001 retail
propane gallons sold, the customer base consisted of 61% residential, 20% commercial and industrial and 19% 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 retail revenues in fiscal
2001.

The
Partnership's Coast Energy Group ("CEG") operations engage in the marketing and distribution of propane to independent dealers, major interstate marketers and the chemical and
petrochemical industries in addition to procurement and distribution of propane for the retail segment. Through CEG, the Partnership also participates in the marketing of other natural gas liquids,
the processing and marketing of natural gas and the marketing 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 CEG 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.

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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, cooking 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
CEG 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, 2001, virtually all of the Partnership's 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. During the year ended June 30, 2001, Louis Dreyfus was the Partnership's largest
supplier providing approximately 11% of the Partnership's total propane supply for its retail and CEG operations (excluding propane obtained from the Partnership's natural gas processing operations).
The Partnership believes that if supplies from Louis Dreyfus were interrupted, it would be able to secure adequate propane supplies from other sources without a material disruption of its operations.
During the year ended June 30, 2000, Louis Dreyfus was the Partnership's largest supplier providing approximately 11% of the Partnership's total propane supply for its retail and CEG operations
(excluding propane obtained from the Partnership's natural gas processing operations). 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 the needs of its customers and does not
foresee any significant shortage in the supply of propane.

The
Partnership engages in the hedging of product cost and supply through common hedging practices by using derivative instruments. These practices are monitored and maintained by

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management for the Partnership on a daily basis. Hedging of product cost and supply does not always result in increased margins. In addition, the Partnership will use derivatives to hedge foreign
exchange exposure, take positions in product cost by utilizing fundamental analysis in the commodity and implement arbitrage strategies where product prices vary in different markets.

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 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 divisions, which are each comprised of regions. Each region is comprised of a number of
customer service centers, and a manager supervises each division and region. Personnel located at the customer service centers in the various regions are primarily responsible for customer service,
sales and delivery of product to the customer.

A
number of functions are centralized at the Partnership's support locations in order to achieve certain operating efficiencies as well as to enable the personnel located in the
customer service centers to focus on customer service and sales. The corporate headquarters and the customer service centers are linked via a computer system. Each of the Partnership's customer
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 CEG operations for 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,
equipment procurement, licensing, 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" and "Coast Energy Group". 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

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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 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 8.8 billion gallons annually, that the 10 largest retailers,
which includes the Partnership, account for
approximately 45% 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
Partnership's CEG operations compete in the wholesale liquefied petroleum gas ("LPG") business, which includes propane and other natural gas liquids, and is highly competitive. In
addition, CEG provides marketing and risk management services in the natural gas and crude oil markets, which are highly competitive. For the year ended June 30, 2001, the Partnership's CEG
operations accounted for 90% of total revenue and approximately 18% of the gross profit.The Partnership believes that its CEG operations provide it
with a national presence and a reasonably secure, efficient supply base, and position it well for expansion through acquisitions or start-up operations in new markets.

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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 $101.0 million with a $250,000 deductible.

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 of the 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 August 31, 2001, the Partnership had 2,206 full-time employees, of whom 115 were general and administrative and 2,091 were operational
employees. Fewer than 20 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 long term 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 improving delivery efficiencies, use of entrepreneurially oriented local manager incentive programs, authorizing pricing decisions
by the local manager and increased emphasis in non-propane activities to reduce weather dependency and (iv) capitalize on the Partnership's CEG marketing, 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 2007.
The accounting and administrative operations

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are centralized at 1700 South Jefferson, Lebanon, Missouri 65536. These offices are leased through 2006. CEG's principal office is at 1600 Hwy 6, Sugar Land, TX 77478 and the office is leased through
2008.

Retail Customer Service Centers and CEG's Operations Locations

The Partnership leases customer service centers and administrative office space under non-cancelable operating leases expiring at various times
through 2015. These leases generally contain renewal options and require the Partnership to pay all executory costs (property taxes, maintenance and insurance). As of June 30, 2001, the
Partnership operated 263 customer service centers.

As
of June 30, 2001, the Partnership operated bulk storage facilities with total propane storage capacity of approximately 53 million gallons, of which 3 million
gallons are owned by the Partnership and 50 million gallons are leased.The Partnership does not own, operate or lease any underground propane
storage facilities (excluding customer and local distribution tanks). The Partnership owns several short distance pipelines in Texas and Louisiana used for transporting crude oil for third party
shippers.

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 customer 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 customer service centers have an aggregate storage capacity of approximately 18 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 42 over-the-road tractors and 50 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. The Partnership also owns and operates 22
over-the-road tractors and 24 transport trailers to haul crude oil. The Partnership is a shipper of crude and natural gas on numerous pipeline systems, with injection and
subsequent delivery being performed by suppliers and customers.

Deliveries
to customers are made by means of approximately 780 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 88% of
these customer storage tanks.

Item 3. Legal Proceedings.

A number of personal injury, property damage and product 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.

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Item 4. Submission of Matters to a Vote of Unitholders.

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

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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 2001           |  | High |       | Low |   | Distributions
|-------------------------- |  | ---- | ----- | --- | - | -------------
|Quarter ended June 30      |  | $    | 17.99 |     | $ | 14.35        
|Quarter ended March 31     |  |      | 16.09 |     |   | 11.88        
|Quarter ended December 31  |  |      | 15.00 |     |   | 11.00        
|Quarter ended September 30 |  |      | 15.75 |     |   | 12.68        
|Fiscal Year 2000           |  |      |       |     |   |              
|Quarter ended June 30      |  |      | 14.81 |     |   | 12.38        
|Quarter ended March 31     |  |      | 15.00 |     |   | 11.25        
|Quarter ended December 31  |  |      | 16.94 |     |   | 10.00        
|Quarter ended September 30 |  |      | 18.75 |     |   | 15.88        

As
of September 28, 2001, there were approximately 16,400 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. To the extent there is sufficient cash, the Partnership would 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. The distribution was reduced to $.27 per Common
Unit for the distribution related to the quarter ended June 30, 2001, which was paid on August 15, 2001. The distribution will be determined by the Board of Directors of the Managing
General Partner on a quarterly basis with consideration given to the Available Cash on a full year basis and the ongoing cash requirements of the Partnership in the future.

During
the Subordination Period, 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"). The Subordination Period will end and all Subordinated Units will convert to Common Units,
when and if full distribution has occurred for both Common Units and Subordinated Units for twelve consecutive quarters. There were no payments to the Subordinated Unitholders in fiscal 2001 or 2000.
Upon expiration of the Subordination Period, all Subordinated Units will convert to Common Units 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 issuances of securities under exemption from registration and 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.

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Item 6. Selected Financial Data.

The
following table presents selected consolidated operating data of Cornerstone Propane Partners, L.P. and its subsidiary for the years ended June 30, 2001, 2000, 1999 and
1998, and balance sheet data as of June 30, 2001, 2000, 1999 and 1998. 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 audited consolidated financial statements, together with the notes thereto, included in Item 8 of this report.

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CORNERSTONE PROPANE PARTNERS, L.P.  CONSOLIDATED FINANCIAL STATEMENT DATA  (In Thousands, Except Per Unit Data)

|                                                                         |  | Year Ended
June 30, 2001 |           | Year Ended June 30, 2000 |   | Year Ended June 30, 1999 |   | Year Ended
June 30, 1998 |          
|------------------------------------------------------------------------ |  | ------------------------ | --------- | ------------------------ | - | ------------------------ | - | ------------------------ | ---------
|Statement of Operations Data:                                            |  |                          |           |                          |   |                          |   |                          |          
|Revenues                                                                 |  | $                        | 4,206,400 |                          | $ | 3,727,090                |   | $                        | 1,154,608
|Cost of Sales                                                            |  |                          | 3,971,757 |                          |   | 3,516,292                |   |                          | 973,367  
|                                                                         |  |                          |           |                          |   |                          |   |                          |          
|Gross profit                                                             |  |                          | 234,643   |                          |   | 210,798                  |   |                          | 181,241  
|Operating, general, and administrative expenses                          |  |                          | 150,925   |                          |   | 141,996                  |   |                          | 123,735  
|Depreciation and amortization                                            |  |                          | 49,636    |                          |   | 37,624                   |   |                          | 27,253   
|Loss on disposition of business and other non-recurring charges          |  |                          | 13,330    |                          |   | 4,600                    |   |                          |         
|                                                                         |  |                          |           |                          |   |                          |   |                          |          
|Operating income                                                         |  |                          | 20,752    |                          |   | 26,578                   |   |                          | 30,253   
|Increase in fair value of derivatives                                    |  |                          | 5,986     |                          |   |                         |   |                          |         
|Interest expense                                                         |  |                          | (40,222   | )                        |   | (36,749                  | ) |                          | (25,033  
|                                                                         |  |                          |           |                          |   |                          |   |                          |          
|Income (loss) before provision for income taxes                          |  |                          | (13,484   | )                        |   | (10,171                  | ) |                          | 5,220    
|Provision (benefit) for income taxes                                     |  |                          | (4,360    | )                        |   | 192                      |   |                          | 47       
|                                                                         |  |                          |           |                          |   |                          |   |                          |          
|Income (loss) before cumulative effect of change in accounting principle |  |                          | (9,124    | )                        |   | (10,363                  | ) |                          | 5,173    
|Cumulative effect of change in accounting principle                      |  |                          | (5,329    | )                        |   |                         |   |                          |         
|                                                                         |  |                          |           |                          |   |                          |   |                          |          
|Net income (loss)                                                        |  | $                        | (14,453   | )                        | $ | (10,363                  | ) | $                        | 5,173    
|                                                                         |  |                          |           |                          |   |                          |   |                          |          

|                                              |  | June 30,
2001 |         | June 30,
2000 |   | June 30,
1999 |   | June 30,
1998
|--------------------------------------------- |  | ------------- | ------- | ------------- | - | ------------- | - | -------------
|Balance Sheet Data:                           |  |               |         |               |   |               |   |              
|Current assets                                |  | $             | 179,281 |               | $ | 141,288       |   | $            
|Total assets                                  |  |               | 868,841 |               |   | 851,210       |   |              
|Current liabilities                           |  |               | 171,517 |               |   | 92,896        |   |              
|Long-term debt (including current maturities) |  |               | 468,156 |               |   | 488,289       |   |              
|Partners' capital                             |  |               | 225,528 |               |   | 268,110       |   |              
|Operating Data:                               |  |               |         |               |   |               |   |              
|Capital expenditures (including acquisitions) |  | $             | 13,777  |               | $ | 55,441        |   | $            
|EBITDA(a)                                     |  |               | 83,718  |               |   | 68,802        |   |              
|Limited Partners' net income (loss) per unit  |  |               | (0.60   | )             |   | (0.43         | ) |              
|Retail propane gallons sold                   |  |               | 275,424 |               |   | 276,400       |   |              

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Item 7. Management's Discussion and Analysis of Financial Condition 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 audited Consolidated 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 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 Partnership's two principal business segments are
its retail and Coast Energy Group ("CEG") operations.

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 are 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, gross 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 years ended June 30, 2001, 2000, and 1999. See Item 6
for a summary of financial data.

Fiscal 2001 Compared to Fiscal 2000:

In fiscal 2001, Cornerstone sold 275.4 million retail propane gallons, a decrease of 1.0 million gallons or 0.4% from the 276.4 million
retail propane gallons sold in fiscal 2000. The change in retail volume was attributable to colder weather, offset by customer conservation and enforcement of retail customer credit policies, which
prohibit deliveries to delinquent customers. The heating season for fiscal 2001 was approximately 5% colder than normal, based on heating degree-days, which positively impacted retail
sales volumes and profits. Offsetting this increase were decreases due to conservation by our customers due to retail propane selling prices that were an average of $0.34 per gallon (32%) higher than
in fiscal 2000.

Revenues
increased by $479.3 million or 12.9% to $4,206.4 million in fiscal 2001, as compared to $3,727.1 million in fiscal 2000. This increase was attributable
to an increase in CEG's revenues of $387.2 million or 11.4% to $3,775.9 million in fiscal 2001, as compared to $3,388.7 million in fiscal 2000, due primarily to higher volume
sales in both crude oil and Natural Gas Liquids coupled with higher commodity prices. Revenues for the retail business increased by $92.1 million or 27.2% to $430.5 million in fiscal
2001, as compared to $338.4 million in fiscal 2000, primarily as a result of higher selling prices due to higher commodity prices.

Cost
of sales increased by $455.5 million or 13.0% to $3,971.8 million in fiscal 2001, as compared to $3,516.3 million in fiscal 2000. The increase in cost of
sales was due to higher CEG volumes and

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sharply higher commodity prices. As a percentage of revenues, cost of sales was essentially unchanged compared to prior year at 94.4% in fiscal 2001. The retail business segment showed an increase in
cost of sales as a percent of revenue to 55.1% in fiscal 2001 from 50.3% in fiscal 2000 as a result of the high commodity prices during the year.

Gross
profit increased $23.8 million or 11.3% to $234.6 million in fiscal 2001, as compared to $210.8 million in fiscal 2000. This came as a result of careful
management of the margins in the retail business by promptly adjusting selling prices in line with product cost changes.

Cash
operating, general and administrative expenses increased by $8.9 million or 6.3% to $150.9 million in fiscal 2001, as compared to $142.0 million in fiscal
2000. This increase was due to an increase in vehicle operating costs as a result of the higher fuel costs, higher employee benefit costs, and additional outside services; with additional costs
required to support the increased business growth in CEG's operations. As a percentage of revenues, operating, general and administrative expenses decreased to 3.6% in fiscal 2001, as compared to 3.8%
in fiscal 2000, primarily due to the increased activity at CEG. Depreciation and amortization increased $12.0 million or 31.9% to $49.6 million in fiscal 2001, as compared to
$37.6 million in fiscal 2000, due to the additional depreciation and amortization expense related to the amortization of prepaid financing costs.

Operating
income decreased $5.8 million or 21.8% to $20.8 million in fiscal 2001, as compared to $26.6 million in fiscal 2000. This decrease was related primarily
to the adjustment associated with the sale of CEG's Canadian crude oil business, increased operating expenses and non-recurring charges associated with the closing of positions entered
into in the prior year, offset by the higher margins attained in the retail operations. During fiscal 2000, a decision was made to expand CEG's physical natural gas operations into gas financial
instruments. Management subsequently concluded that this strategy was incompatible with the Partnership's risk profile and value proposition and, accordingly, discontinued those operations in the
fourth quarter of fiscal 2000. The Partnership recognized $5.6 million of related losses in fiscal 2001. In the fourth quarter of fiscal 2001, the Partnership recorded a $9.8 million
non-cash charge following a detailed review of the Canadian crude oil and U.S.-based petroleum liquids processing operations of CEG. The review was performed in connection with the
documentation of the final accounting treatment of the sale of CEG's Canadian crude oil business in fiscal 2001. It was determined that $8.2 million of this charge was directly related to the
Canadian crude oil business, which is included in "Loss on disposition of business and other non-recurring charges" on the Partnership's Consolidated Statements of Operations.

Interest
expense increased by $3.5 million or 9.5% to $40.2 million in fiscal 2001, as compared to $36.7 million in fiscal 2000 due to higher working capital
borrowings caused by higher commodity costs and interest rates. Interest rates were impacted by Federal Reserve rate increases earlier in the year, partially offset by declining rates in the third and
fourth quarters.

The
Partnership's net loss before cumulative effect of a change in accounting principle decreased $1.3 million to a net loss of $9.1 million in fiscal 2001, as compared
to a net loss of $10.4 million in fiscal 2000. This decrease is related primarily to the increase in gross profit noted above. Total EBITDA increased by $14.9 million or 21.7% to
$83.7 million for fiscal 2001, as compared to $68.8 million for fiscal 2000. The increase in EBITDA reflects the increased gross profits partially offset by the operating expenses
discussed above. Retail operations contributed approximately 10% of the revenue and 104% of the EBITDA from operations for fiscal year 2001.

Fiscal 2000 Compared to Fiscal 1999:

In fiscal 2000, Cornerstone sold 276.4 million retail propane gallons, an increase of 14.8 million gallons or 5.7% from the 261.6 million
retail propane gallons sold in fiscal 1999. The increase in retail volume was attributable to acquisitions, which added 27.0 million gallons, partially offset by decreases due to the record
breaking warm winter weather conditions during the winter of 1999 - 2000. The

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heating season for fiscal 2000 was the warmest on record in the last 106 years, since weather records have been maintained, which negatively impacted retail sales volumes and profits.

Revenues
increased by $2,572.5 million or 222.8% to $3,727.1 million in fiscal 2000, as compared to $1,154.6 million in fiscal 1999. This increase was
attributable to an increase in CEG's revenues of $2,498.7 million or 280.8% to $3,388.7 million in fiscal 2000, as compared to $890.0 million in fiscal 1999, due primarily to
higher volume sales coupled with higher commodity prices. Revenues for the retail business increased by $73.8 million or 27.9% to $338.4 million in fiscal 2000, as compared to
$264.6 million in fiscal 1999, as a result of higher selling prices, and increased sales from acquisitions and internal growth.

Cost
of sales increased by $2,542.9 million or 261.2% to $3,516.3 million in fiscal 2000, as compared to $973.4 million in fiscal 1999. The increase in cost of
sales was due to higher CEG volumes and sharply higher commodity prices. As a percentage of revenues, cost of sales increased to 94.3% in fiscal 2000, as compared to 84.3% in fiscal 1999, due to
higher growth in the CEG business segment, which has a higher cost of sales to revenue ratio. The CEG business segment operates in the wholesale energy markets, which have very high cost to revenue
ratios as compared to the retail segment.

Gross
profit increased $29.6 million or 16.3% to $210.8 million in fiscal 2000, as compared to $181.2 million in fiscal 1999, due to retail and wholesale
acquisitions, internal growth in the natural gas liquids and crude oil business units within CEG, internal growth in the retail segment and growth in non-fuel sales and service in the
retail segment.

Cash
operating, general and administrative expenses increased by $18.3 million or 14.8% to $142.0 million in fiscal 2000, as compared to $123.7 million in fiscal
1999. This increase was related primarily to acquisitions, with additional costs required to support the increased business growth in CEG's operations. As a percentage of revenues, operating, general
and administrative expenses decreased to 3.8% in fiscal 2000, as compared to 10.7% in fiscal 1999, primarily due to the increased activity at CEG. Depreciation and amortization increased
$10.3 million or 37.7% to $37.6 million in fiscal 2000, as compared to $27.3 million in fiscal 1999, due to the additional depreciation and amortization expense related to
acquisitions.

Operating
income decreased $3.7 million or 12.2% to $26.6 million in fiscal 2000, as compared to $30.3 million in fiscal 1999. Much of this decrease was related
to exceptionally warm weather and a one-time charge to earnings of $4.6 million associated with a discontinued line of operations recorded in the fourth quarter. During fiscal 2000,
a decision was made to expand Coast Energy Group's physical natural gas operations into gas financial instruments. Management subsequently concluded that this strategy was incompatible with the
Partnership's risk profile and value proposition and, accordingly, discontinued those operations in the fourth quarter and recorded the related losses.

Interest
expense increased by $11.7 million or 46.8% to $36.7 million in fiscal 2000, as compared to $25.0 million in fiscal 1999 due to higher borrowings in the
current period related to business acquisitions, increased working capital needs related to higher commodity costs and higher interest rates on working capital floating rate debt which were impacted
by Federal Reserve interest rate increases this past year.

Net
income decreased $15.6 million to a net loss of $10.4 million in fiscal 2000, as compared to net income of $5.2 million in fiscal 1999. This decrease is
related primarily to increased depreciation and amortization and interest expense components and impact of the warm winter on retail sales volumes and profits as discussed above. Total EBITDA
increased by $11.3 million or 19.7% to $68.8 million for fiscal 2000, as compared to $57.5 million for fiscal 1999. The increase in EBITDA reflects the increased gross profits
partially offset by the operating expenses discussed above. Retail operations contributed approximately 9% of the revenue and 94% of the EBITDA from operations for fiscal year 2000.

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Liquidity and Capital Resources

Cash Flows from Operating and Investing Activities.

Fiscal 2001:

Cash provided by operating activities during 2001 totaled $68.4 million. Cash flow from operations included a net loss of $14.5 million and
non-cash charges of $43.4 million for the period, comprised primarily of depreciation and amortization expense and deferred income taxes and other non-cash items. The
impact of working capital changes decreased cash flow by approximately $39.5 million.

Cash
used in investing activities for 2001 totaled $6.4 million, which was primarily used for purchases of property and equipment, net of proceeds from the sales of assets.
Cash used by financing activities was $63.3 million for 2001. This amount reflects repayments of the Partnership's Working Capital Facility, the payment of other long-term debt, and
quarterly distributions from the Partnership to its Common Unitholders.

Fiscal 2000:

Cash used by operating activities during 2000 totaled $0.2 million. Cash flow from operations included net loss of $10.4 million and
non-cash charges of $36.5 million for the period, comprised of depreciation and amortization expense and the gain on sale of assets. The impact of working capital changes decreased
cash flow by approximately $26.3 million.

Cash
used in investing activities for 2000 totaled $50.3 million, which was principally used for acquisitions and partially used for purchases of property and equipment. Cash
used by financing activities was $49.0 million for 2000. This amount reflects funds from a placement of senior notes and net borrowings on the Partnership's Working Capital Facility, partially
offset by the payment of other long-term debt and Partnership quarterly distributions to its Common Unitholders.

Financing and Sources of Liquidity:

For fiscal year 2001, financing of investments in property, plant and equipment was primarily through cash flows generated by operations and the sales of
under-utilized assets.

For
fiscal year 2000, financing of investments in acquisitions and property, plant and equipment had been obtained through a balanced funding approach that included the placement of
Senior Notes and utilization of bank credit facility advances.

See
Footnote 3 to the Partnership's financial statements included in Item 8 for additional information on long-term debt.

In
October 1998, the Partnership filed a Form S-3 registration statement covering the proposed issuance of 3,487,500 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. In December 1998, the Partnership
issued 3.1 million additional Common Units as part of the funding for the Propane Continental, Inc. acquisition. Approximately 387,500 units are available for issuance under this
registration statement as of June 30, 2001.

Additionally,
approximately 454,000 common units were issued in fiscal 1999 to the selling shareholders of Propane Continental, Inc. and other acquired businesses, which did
not require the use of cash.

On
July 27, 2001, the Board of Directors of the Managing General Partner announced a reduction of the distribution for the quarter ending June 30, 2001 from $0.54 per
unit to $0.27 per unit to be paid on August 15, 2001. The $0.54 "Minimum Quarterly Distribution" was not reduced, and the difference between $0.54 and the $0.27 distributed will therefore
accrete as a priority over any

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distribution on Subordinated Units. Each quarter, the Board of Directors will review the amount of the distribution. In that review, the Board will analyze the operating performance of the
Partnership, capital expenditure needs, access to financing, prevailing economic, financial, business, weather and other factors, including the Partnership Agreement, to determine the level of the
distribution payment. The reduction of the distribution, following a solid operating performance in fiscal year 2001, was taken in recognition of the expiration of the Partnership's current working
capital and acquisition credit facility on November 30, 2001, the requirement to reduce leverage to maintain future financial flexibility with replacement financing, and the general national
economic uncertainties and resulting conservatism in the credit community.

The
Partnership is currently negotiating to extend the maturity date of the Credit Agreement to a date in fiscal 2003 or later. While management believes that negotiations are
proceeding satisfactorily, contractual commitments have not been made as of October 5, 2001, and the transaction has not been consummated. Northwestern, the owner of the Managing General
Partner, has agreed to extend credit to the Partnership on substantially similar terms through July 1, 2002 in the event satisfactory third party financing cannot be arranged by
November 30, 2001. While the terms of such credit facility would need to be negotiated, Northwestern has agreed that any such credit extension would not mature prior to July 1, 2002,
unless an alternative third party credit facility was in place.

To
the extent any of the foregoing transactions involved the offer or sale of a security, except as otherwise noted, they were done under Section 4(2) of the Securities Act of
1933 based, among other
things, on representations and warranties made by the investors, the small numbers of investors solicited and the absence of any advertising or general solicitation.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The Partnership has limited exposure to technology risk, credit risk, interest rate risk, foreign currency risk, and commodity price risk.

Strategies and proceduresIn the normal course of business, the Partnership employs various strategies and procedures to
manage its exposure to changes in interest rates, fluctuations in the value of foreign currencies, and changes in commodity prices.

Concentration of credit riskThe Partnership's trade receivables and short-term investments do not represent
significant concentration of credit risk at June 30, 2001, due to the wide variety of customers and markets in which the Partnership's products and services are sold. None of the Partnership's
customers account for more than 10% of the Partnership's revenue or receivable balances at June 30, 2001. Short-term investments at any single financial institution account for less
than 10% of the Partnership's current assets.

Commodity Price RiskCommodity price risk arises from the risk of price changes in the commodities that the Partnership
buys and sells and as a consequence of providing price risk management services to customers. Futures and forward contracts are utilized to alter the Partnership's exposure to price fluctuations
related to the purchase of propane, natural gas and crude oil. If commodity prices changed by 5%, the impact on open positions at August 31, 2001 would be approximately $0.3 million. In
the past, price changes have generally been passed along to the Partnership's customers to maintain gross margins, mitigating the commodity price risk. The Partnership enters into hedging instruments
to lock into purchases when prices are deemed favorable by management.

Interest Rate RiskInterest rate risk arises from having variable rate debt obligations, as changing interest rates impact
the Partnership's future cash flows and net income. The Partnership's objective in managing its exposure to interest rate changes is to limit the impact of interest rate changes on earnings and cash
flows and to lower its overall borrowing costs. To achieve this objective, the

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Partnership maintains the majority of its debt in fixed rate instruments and periodically places some of its floating rate debt under short-term fixed rate Eurodollar loans. On the
Partnership's variable rate debt, a change in interest rates of one percentage point would change interest expense by approximately $0.6 million.

Foreign Currency Exchange Rate RiskForeign currency rate risk arises from the Partnership's Canadian operations. The
Partnership's objective in managing the exposure to foreign currency fluctuations is to reduce earnings and cash flow volatility associated with foreign exchange rate changes and to allow management
to focus its attention on its core business issues and activities. Accordingly, the Partnership enters into various contracts that change in value as foreign exchange rates change to protect the value
of existing foreign currency assets, liabilities and foreign currency sales. If foreign exchange rates changed by 5%, earnings would change by approximately $0.3 million due to the translation
of earnings in foreign currencies.

It
is the Partnership's policy to enter into interest rate and foreign currency transactions only to the extent considered necessary to meet its objectives as stated above. The
Partnership does not enter into interest or foreign currency transactions for speculative purposes.

Forward-Looking Statements

This Report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, relating to the
Partnership's future business expectations and predictions and financial condition and results of operations. These forward-looking statements involve certain risks and uncertainties. The
Partnership's actual future performance will be affected by a number of factors, risks, and uncertainties, including, without limitation: the impact of weather conditions on the demand for propane;
fluctuations in the unit cost of propane; the ability of the Partnership to compete with other suppliers of propane and other energy sources; the ability of the Partnership to retain and acquire
customers; the Partnership's ability to implement its expansion strategy and to integrate acquired businesses successfully; the impact of energy efficiency and technology advances on the demand for
propane; the ability of management to continue to control expenses; the impact of regulatory developments on the Partnership's business; and the impact of legal proceedings on the Partnership's
business. All subsequent written and oral forward-looking statements attributable to the Partnership or persons acting on its behalf are expressly qualified in their entirety by such cautionary
statements. 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 fiscal years.

Item 8. Financial Statements and Supplementary Data.

The Consolidated Financial Statements of the Partnership 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

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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 at June 30, 2001. Executive officers and directors are elected for one-year terms.

|Name                |  | Age |  | Position with Managing General Partner                                                        |  | Director or Officer Since
|------------------- |  | --- |  | --------------------------------------------------------------------------------------------- |  | -------------------------
|Merle D. Lewis      |  | 53  |  | Chairman of the Board of Directors                                                            |  | 1996                     
|Richard R. Hylland  |  | 40  |  | Vice Chairman of the Board of Directors                                                       |  | 1996                     
|Keith G. Baxter     |  | 52  |  | President, Chief Executive Officer and Director                                               |  | 1996                     
|Charles J. Kittrell |  | 61  |  | Executive Vice President, Chief Operating Officer and Secretary                               |  | 1996                     
|Ronald J. Goedde    |  | 52  |  | Executive Vice President, Chief Financial Officer, Treasurer and Assistant Secretary          |  | 1996                     
|Richard D. Nye      |  | 46  |  | Acting Chief Financial Officer, Vice President Finance and Administration Assistant Secretary |  | 1998                     
|William L. Woods    |  | 51  |  | Vice President Acquisitions                                                                   |  | 1996                     
|Alan Movson         |  | 48  |  | Vice President Human Resources                                                                |  | 1997                     
|William A. Lang     |  | 53  |  | Executive Vice President, Chief Executive Officer of CEG                                      |  | 2000                     
|Paul R. Christen    |  | 72  |  | Director                                                                                      |  | 1997                     
|Kurt Katz           |  | 68  |  | Director                                                                                      |  | 1997                     
|Gary Olson          |  | 60  |  | Director                                                                                      |  | 2001                     
|Daniel K. Newell    |  | 44  |  | Director                                                                                      |  | 1996                     

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; with the exception of Mr. Olson, who filed his Form 3 12 days late.

Merle D. Lewishas been the Chairman of the Board of Directors and Chief Executive Officer of Northwestern Corporation since 1994.

Richard R. Hyllandis also the President, Chief Operating Officer, and Vice Chairman of the Board of Directors of Northwestern
Corporation. He is also a member of the Boards of Directors of LodgeNet Entertainment Corporation, a provider of entertainment, information & marketing services to the lodging industry, and MDC
Communications, a provider of secure transaction products & services & communications & marketing services.

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Keith G. Baxterwas the President, Chief Executive Officer, and Chairman of the Board of Directors of CGI Holdings, Inc. from
1986 - 1996. He is also Chairman of the Board of Directors of Red Meteor.com, Inc. since 2000.

Charles J. Kittrellwas the Executive Vice President and Chief Operating Officer of CGI Holdings, Inc. from
1986 - 1996.

Ronald J. Goeddewas the Executive Vice President and Chief Financial Officer of CGI Holdings, Inc. from
1988 - 1996. Mr. Goedde resigned from the Partnership effective June 30, 2001.

Richard D. Nyewas a Group Managervarious financial management positions with Frito-Lay, Inc. from
1989 - 1998.

William L. Woodswas the Vice PresidentMarketing and Acquisitions for Coast Gas from
1994 - 1996.

Alan Movsonwas the Director of Human Resources for Household Credit Services from 1988 - 1997.

William A. Langwas the President and Chief Operating Officer of EnergyUSATPC (a NiSource, Inc. affiliate) from
1999 to 2000, the Vice President and General Manager of ECOM Worldwide, Inc. from 1998 to 1999, a Managing Director for Southern Company Energy Marketing, L.P. from 1997 to 1998, and the
President and Chief Executive Officer of Vaster Resources, Inc. from 1992 to 1997.

Paul R. Christenis also the President, Chief Executive Officer, and a member of the Board of Directors of First Western
Bancorp, Inc.

Kurt Katzwas the President and Chief Operating Officer of Peabody International Corporation and is the Chairman of the Board of
Directors of Polymeric Resources Corporation. He is also a member of the Board of Directors of MSC Industrial Supply Company, Wilton Catering, and Intershoe Corporation.

Gary Olsonwas the President and Chief Executive Officer of Norwest Bank South Dakota, N.A. from 1988 until his retirement in 1999.

Daniel K. Newellis also the Senior Vice President of Northwestern Corporation, and is the Managing Director and Chief Executive
Officer of Northwestern Growth Corporation.

Item 11. Executive Compensation.

The following table provides compensation information for the years ended June 30, 2001, 2000, and 1999, for the Chief Executive Officer and for each of
the four other most highly compensated executive officers of the Managing General Partner as of the end of each year whose total compensation exceeded $100,000 for the most recent fiscal period.

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Summary Compensation Table

|                                                                  |  |                |  | Annual Compensation |                         |  |   |                        
|----------------------------------------------------------------- |  | -------------- |  | ------------------- | ----------------------- |  | - | -----------------------
|
|
|
|
|Keith G. Baxter
Chief Executive Officer                           |  | 2001
2000
1999 |  | $                   | 561,618
496,577
313,958 |  | $ | 441,531
488,709
924,785
|Charles J. Kittrell
Chief Operating Officer                       |  | 2001
2000
1999 |  |                     | 302,618
271,481
219,375 |  |   | 299,273
379,000
633,543
|Ronald J. Goedde
Chief Financial Officer (resigned June 2001)     |  | 2001
2000
1999 |  |                     | 257,425
237,500
172,917 |  |   | 272,539
349,079
579,201
|William L. Woods
Vice President                                   |  | 2001
2000
1999 |  |                     | 129,462
186,577
164,690 |  |   | 224,687
199,472
356,518
|William A. Lang
Chief Executive
OfficerCEG                       |  | 2001           |  |                     | 233,462                 |  |   |                       
|Thomas E. Knauff
Executive Vice President (resigned January 2001) |  | 2001           |  |                     | 169,231                 |  |   |                       

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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, William L. Woods and William A. Lang (the "Executives").

Pursuant
to the Employment Agreements, Messrs. Baxter, Kittrell, Goedde, Woods and Lang serve (or served, in the case of Mr. Goedde) as President and Chief Executive
Officer, Executive Vice President and Chief Operating Officer, Executive Vice President and Chief Financial Officer, Vice President and Executive Vice President, respectively, of the Managing General
Partner. Mr. Goedde resigned as Executive Vice President and Chief Financial Officer effective June 30, 2001. The Employment Agreements currently expire on June 30, 2003. The
Employment Agreements provide for an annual base salary of $561,000, $302,000, $257,000, $187,000 and $264,000 for each of Messrs. Baxter, Kittrell, Goedde, Woods and Lang, respectively,
subject to such increases as the Board of Directors of the Managing General Partner may authorize from time to time. Starting in 1997 and continuing for three years, Messrs. Baxter, Kittrell,
and Goedde received management fees of approximately $135,000, $65,000 and $40,000, respectively, 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; $410,000 life insurance policies for each of Messrs. Kittrell, Goedde, a $250,000
policy for Mr. Woods, and a $500,000 policy for Mr. Lang. Each of the Executives participates in the Annual Operating Performance Incentive Plan of the Managing General Partner and
Messrs. Baxter, Kittrell, Goedde and Woods participate in the Acquisition Incentive Plan of the Managing General Partner (together with the Annual Operating Performance Incentive Plan, the
"Plans") as described below. Messrs. Baxter and Lang participate in the Coast Energy Group Stock Appreciation Rights Plan. Mr. Lang also participates in the CEG Management Incentive
Compensation plan. 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 a change in control as defined
in the agreements, an Executive would receive severance of three years from the change in control date plus additional benefits. 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

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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 are 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. Lang, 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 Northwestern become beneficially owned by any party or group or other prescribed
events occur constituting a change of control of Northwestern.

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 (the "AOPIP"), which provides for the payment of annual incentive
bonuses to participants (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 50% for performance
at 10% below budget to 100% 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, Movson, Nye and Woods and any other participants that the Board of Directors of the Managing General Partner may determine. The AOPIP is an annual plan
covering each year of the employment agreement for each officer.

The
Managing General Partner has an Acquisition Incentive Plan (the "AIP"), which provides for bonuses to participants (covering Messrs. Baxter, Kittrell, Goedde and Woods) 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 AIP based on
defined percentages. The transactions covered by the AIP will include those occurring on or after December 17, 1997 through the fifth anniversary thereof. Awards under the AIP will be payable
in cash 90 days after the close of the particular acquisition transaction, except for the acquisition of Propane Continental, Inc., for which payments were extended over 3 years.

The
Managing General Partner has a Management Incentive Compensation plan for employees of CEG. Mr. Lang is the only executive participating in this plan. Amounts paid under
this plan are determined each year, subject to approval by the Board of Directors.

Supplemental Executive Retirement Plan

The Partnership maintains a non-qualified Supplemental Executive Retirement Plan ("SERP") for selected management. The SERP plan provides benefits
for participants and allows for deferral of a portion of the participant's salary if elected. The Partnership does not contribute any funds to a third party administrator for the SERP. Participants
are 100% vested. Distributions are made at a date specified by the participant and can be accelerated when the participant terminates employment from the Partnership at the option of the Partnership.

23

---

Long-Term Incentive Plans

Restricted Unit Plan

The following table sets forth the restricted unit grants made under the Restricted Unit Plan to the named executive officers of the Partnership during the
last fiscal year.

|Name                |  | Number of Shares, Units
or Other Rights |  | Performance or Other Period
Until Maturation or Payout |  
|------------------- |  | --------------------------------------- |  | ------------------------------------------------------ | -
|Keith G. Baxter     |  | 12,759                                  |  | (1                                                     | )
|Charles J. Kittrell |  | 8,621                                   |  | (1                                                     | )
|Ronald J. Goedde    |  | 8,621                                   |  | (1                                                     | )
|William A. Lang     |  | 54,545                                  |  | (1                                                     | )
|William L. Woods    |  | 2,069                                   |  | (1                                                     | )

---

Stock Appreciation Rights Plan

The Partnership adopted the 1996 Stock Appreciation Rights ("SAR") Plan, as amended, to compensate selected management within CEG. The SAR plan utilizes a
valuation of phantom stock representing the equity of the Partnership's CEG division. Awards vest over a five year period for each
participant. An annual valuation is computed at the end of each fiscal year. Awards under the SAR plan are payable in cash for the vested portion at the election of the participant, to the extent that
the annual value of the SAR stock exceeds the base valuation for each participant.

|Name            |  | Number of Shares, Units
or Other Rights |  | Performance or Other
Period Until
Maturation or Payout |   | Total
value of units at
June 30, 2001
|--------------- |  | --------------------------------------- |  | ------------------------------------------------------ | - | -------------------------------------
|Keith G. Baxter |  | 124,000                                 |  | (1                                                     | ) | $                                    
|William A. Lang |  | 150,000                                 |  | (1                                                     | ) |                                      

---

24

---

Director Compensation

The Chairman of the Board of the Managing General Partner receives $50,000 annually and each of its other nonemployee directors receives $24,000 annually, plus
$2,000 per Board meeting attended or Special Committee meeting attended and $1,000 per committee meeting attended. Committee chairmen receive $500 per quarter. The Board of Directors of the Managing
General Partner has established committees as follows; Audit Committee, Nominating and Compensation Committee, and the Special Committee. The Special Committee, comprised of three independent members
of the Board of Directors, was established in July 2001 to represent the interests of the public unitholders in reviewing
proposals submitted to it by the managing general partner, including proposals relating to leverage, capital structure and operating plan, in which the managing general partner or its affiliates have
an interest separate from the interests of the public unitholders.

In
connection with the consummation of the IPO and in connection with the acquisition of Propane Continental, Inc., the three initial nonemployee directors of the Managing
General Partner received rights with respect to restricted units, as follows: Mr. Lewis, 29,189 Common Units valued at $560,000; Mr. Hylland, 21,892 Common Units valued at $420,000; and
Mr. Newell, 14,979 Common Units valued at $285,000. 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 $240,000. The directors' restricted units vest in accordance with the same procedure as is described
in Note 1 to the Long-Term Incentive PlanAwards in Last Fiscal Year table above.

Compensation Committee Interlocks and Insider Participation

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.

25

---



Item 12. Security Ownership of Certain Beneficial Owners and Management, Ownership of Partnership Units by the General Partners and Directors and Executive Officers of The  Managing General Partner

The table below sets forth, as of August 31, 2001, 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 of Beneficial Owner                                |  | Class        |  | Amount and Nature of Beneficial Owner |        | Percent of Class |  
|------------------------------------------------------------------- |  | ------------ |  | ------------------------------------- | ------ | ---------------- | -
|Managing General Partner                                            |  | Subordinated |  | 5,677,040                             | (1)    | 86.0             | %
|Special General Partner                                             |  | Subordinated |  | 920,579                               | (2)    | 14.0             | %
|Merle D. Lewis                                                      |  | Common       |  | 12,771                                | (3)(4) | *                |  
|Richard D. Hylland                                                  |  | Common       |  | 4,309                                 | (3)(4) | *                |  
|Keith G. Baxter                                                     |  | Common       |  | 57,872                                | (3)    | *                |  
|Charles J. Kittrell                                                 |  | Common       |  | 32,600                                | (3)    | *                |  
|Ronald J. Goedde                                                    |  | Common       |  | 14,153                                | (3)    | *                |  
|William A. Lang                                                     |  | Common       |  | 4,564                                 | (3)    | *                |  
|Richard D. Nye                                                      |  | Common       |  | 1,136                                 | (3)    | *                |  
|William L. Woods                                                    |  | Common       |  | 25,965                                | (3)    | *                |  
|Alan Movson                                                         |  | Common       |  | 1,379                                 | (3)    | *                |  
|Paul R. Christen                                                    |  | Common       |  | 4,176                                 | (3)    | *                |  
|Kurt Katz                                                           |  | Common       |  | 37,210                                | (3)    | *                |  
|Gary Olson                                                          |  | Common       |  | 12,006                                | (3)    | *                |  
|Daniel K. Newell                                                    |  | Common       |  | 6,107                                 | (3)(4) | *                |  
|All directors and executive officers (13 persons) as a common group |  | Common       |  | 214,121                               | (3)    | *                |  

---

Item 13. Certain Relationships and Related Party Transactions.

As of August 31, 2001, the General Partners own the entire general partner interest in the Partnership and all of the Subordinated Units, representing
an aggregate 27.1% 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

26

---

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 of NOR, 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.

See
also Notes 1 and 3 to the Consolidated Financial Statements for additional information on certain transactions between Northwestern and the Partnership.

27

---



PART IV

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

Cornerstone Propane Partners, L.P.Report of Independent Public AccountantsConsolidated Balance Sheets as of June 30, 2001 and 2000Consolidated Statements of Operations for the years ended June 30, 2001, 2000 and 1999Consolidated Statements of Partners' Capital for the years ended June 30, 2001, 2000 and 1999Consolidated Statements of Cash Flows for the years ended June 30, 2001, 2000 and 1999


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.

| | 3.1  |  | Amended and Restated Agreement of Limited Partnership of Cornerstone Propane Partners, L.P. dated as of December 17, 1996. (Incorporated by reference to Exhibit 3.1 of the Partnership's report on
Form 8-K dated April 14, 1997 (The Form 8-K).)               
| | ---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 3.2  |  | Amended and Restated Agreement of Limited Partnership of Cornerstone Propane, L.P. dated as of December 17, 1996. (Incorporated by reference to Exhibit 3.2 to the Form 8-K.)                                                                                    
| | 4.1  |  | Refunding Credit Agreement dated November 20, 1998. (Incorporated by reference to Exhibit 4.1 to the Partnership's previous report on Form 10-K, dated September 25, 2000).                                                                                      
| | 4.2  |  | First Amendment to the Bank Refunding Credit Agreement, dated June 30, 2000 (Incorporated by reference to Exhibit 4.2 to the Partnership's previous report on Form 10-K, dated September 25, 2000).                                                              
| | 4.3  |  | Warrant and Registration Rights Agreement between Cornerstone Propane Partners, L.P. and Northwestern Corporation, dated June 30, 2000 (Incorporated by reference to Exhibit 4.3 to Quarterly Report on Form 10-Q for the quarter
ended September 30, 2000).     
| | 4.4  |  | Letter Agreement between the Registrant and Northwestern Corporation dated June 28, 2000, relating to compensation under Guaranty Agreement (Incorporated by reference to Exhibit 4.4 to Quarterly Report on Form 10-Q for the quarter
ended September 30, 2000).
| | 10.1 |  | Credit Agreement dated December 17, 1996, among Cornerstone Propane, L.P., various financial institutions and Bank of America National Trust and Savings Association, as agent. (Incorporated by reference to Exhibit 10.1 to the
Form 8-K.)                     
| | 10.2 |  | Note Purchase Agreement dated December 17, 1996, among Cornerstone Propane, L.P. and various investors. (Incorporated by reference to Exhibit 10.2 to the Form 8-K.)                                                                                             

28

---

|                                                            | 10.3  |  | Contribution, Conveyance and Assumption Agreement dated as of December 17, 1996 among Cornerstone Propane Partners, L.P., Cornerstone Propane, L.P., Cornerstone Propane GP, Inc., Empire Energy SC Corporation and SYN Inc.
(Incorporated by reference to Exhibit 10.3 to the Form 8-K.)   
|----------------------------------------------------------- | ----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                            | 10.4  |  | *1996 Cornerstone Propane Partners, L.P. Restricted Unit Plan (Incorporated by reference to Exhibit 10.4 to the Form 8-K.)                                                                                                                                                                  
|                                                            | 10.5  |  | *Form of Employment Agreements for Messrs. Baxter, Kittrell, Goedde, and Woods (Incorporated by reference to Exhibit 10.5 of the Partnership's report on Form 10-Q dated November 13, 1998.)                                                                                                
|                                                            | 10.6  |  | Amendment No. 1 to Credit Agreement (Incorporated by reference to Exhibit 10.6 to the Partnership's previous report on Form 10-K, dated September 28, 1997.)                                                                                                                                
|                                                            | 10.7  |  | Amendment No. 2 to Credit Agreement (Incorporated by reference to Exhibit 10.7 to the Partnership's previous report on Form 10-K, dated September 28, 1997.)                                                                                                                                
|                                                            | 10.8  |  | *Cornerstone Propane Deferred Compensation Plan, effective July 1, 1998 (Incorporated by reference to Exhibit 10.8 of the Partnership's report on Form 10-Q, dated February 15, 1999)                                                                                                       
|                                                            | 10.9  |  | Note agreement, dated as of December 11, 1998, by and among Cornerstone Propane GP, Inc., SYN, Inc., Cornerstone Propane, L.P., and the purchasers set forth therein. (Incorporated by reference to Exhibit 10.9 to the
Partnership's previous report on Form 10-Q, dated February 15, 1999)
|                                                            | 10.10 |  | Note agreement, dated as of June 25, 1999, by and among Cornerstone Propane GP, Inc., SYN, Inc., Cornerstone Propane, L.P., and the purchasers set forth therein. (Incorporated by reference to Exhibit 10.10 to the
Partnership's previous report on Form 10-K, dated September 23, 1999.) 
|                                                            | 10.11 |  | *Coast Energy Group Stock Appreciation Rights Agreement, dated May 14, 1996. (Incorporated by reference to Exhibit 10.11 to the Partnership's previous report on Form 10-Q, dated November 12, 1999)                                                                                        
|                                                            | 10.12 |  | *Coast Energy Group Stock Appreciation Rights Agreement, dated March 23, 1999. (Incorporated by reference to Exhibit 10.12 to the Partnership's previous report on Form 10-Q, dated November 12, 1999.)                                                                                     
|                                                            | 10.13 |  | Note Agreement, dated as of November 4, 1999, by and among Cornerstone Propane GP, Inc., SYN Inc., Cornerstone Propane, L.P., and the purchasers set forth therein. (Incorporated by reference to Exhibit 10.13 to the
Partnership's previous report on Form 10-Q, dated February 11, 2000.)
|                                                            | 10.14 |  | Guaranty Agreement dated June 30, 2000. (Incorporated by reference to Exhibit 10.14 to the Partnership's previous report on Form 10-K, dated September 25, 2000).                                                                                                                           
|                                                            | 10.15 |  | Agreement relating to continuing credit support, dated October 8, 2001, between Northwestern Corporation and Cornerstone Propane Partners, L.P.                                                                                                                                             
|                                                            | 21.1  |  | List of Subsidiaries                                                                                                                                                                                                                                                                        
|                                                            | 23.1  |  | Consent of Arthur Andersen LLP                                                                                                                                                                                                                                                              
|*  Management contract or compensatory plan or arrangement.



29

---



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:                               

| |  | By: |  | /s/KEITH G. BAXTERKeith G. Baxter
| |  | --- |  | ---------------------------------

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

|Signature                               |  | Capacity in which Signed                                                                                                  |  | Date            
|--------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------- |  | ----------------
|                                        |  |                                                                                                                           |  |                 
|/s/MERLE D. LEWISMerle D. Lewis         |  | Chairman of the Board Of Directors of the Managing General Partner                                                        |  | October 15, 2001
|/s/RICHARD R. HYLLANDRichard R. Hylland |  | Vice Chairman of the Board Of Directors of the Managing General Partner                                                   |  | October 15, 2001
|/s/KEITH G. BAXTERKeith G. Baxter       |  | President, Chief Executive Officer and Director of the Managing General Partner (principal executive officer)             |  | October 15, 2001
|/s/RICHARD D. NYERichard D. Nye         |  | Vice President, Acting Chief Financial Officer of the Managing General Partner (principal financial & accounting officer) |  | October 15, 2001
|/s/PAUL R. CHRISTENPaul R. Christen     |  | Director of the Managing General Partner                                                                                  |  | October 15, 2001

30

---

|/s/KURT KATZKurt Katz               |  | Director of the Managing General Partner |  | October 15, 2001
|----------------------------------- |  | ---------------------------------------- |  | ----------------
|/s/DANIEL K. NEWELLDaniel K. Newell |  | Director of the Managing General Partner |  | October 15, 2001
|/s/GARY OLSONGary Olson             |  | Director of the Managing General Partner |  | October 15, 2001

31

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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, 2001 and 2000,
and the related consolidated statements of operations, partners' capital, and cash flows for the years ended June 30, 2001, 2000, and 1999. 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 auditing standards generally accepted in the United States. 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 financial position of Cornerstone Propane Partners, L.P. and Subsidiary as of
June 30, 2001 and 2000, and the results of their operations and their cash flows for the years ended June 30, 2001, 2000, and 1999, in conformity with accounting principles generally
accepted in the United States.

As
discussed in Note 10 to the Consolidated Financial Statements, Cornerstone Propane Partners, L.P. and Subsidiary adopted the provisions of Statement of Financial Accounting
Standards No. 133 (Accounting for Derivative Instruments and Hedging Activities) effective July 1, 2000.

ARTHUR
ANDERSEN, LLP

Minneapolis,
Minnesota
October 5, 2001

32

---



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

|                                   |                                                                             | June 30,                                |        
|---------------------------------- | --------------------------------------------------------------------------- | --------------------------------------- | -------
|
|
|ASSETS                             |                                                                             |                                         |        
|Current assets:                    |                                                                             |                                         |        
|                                   | Cash and cash equivalents                                                   |                                         | $      
|                                   | Trade receivables, net                                                      |                                         |        
|                                   | Inventories                                                                 |                                         |        
|                                   | Prepaid expenses                                                            |                                         |        
|                                   | Other current assets                                                        |                                         |        
|                                   |                                                                             |                                         |        
|                                   |                                                                             | Total current assets                    |        
|Property, plant and equipment, net |                                                                             |                                         | 328,848
|Goodwill, net                      |                                                                             |                                         | 315,108
|Other intangible assets, net       |                                                                             |                                         | 32,624 
|Due from related party             |                                                                             |                                         | 4,839  
|Other assets                       |                                                                             |                                         | 8,141  
|                                   |                                                                             |                                         |        
|                                   |                                                                             | Total assets                            |        
|                                   |                                                                             |                                         |        
|LIABILITIES AND PARTNERS' CAPITAL  |                                                                             |                                         |        
|Current liabilities:               |                                                                             |                                         |        
|                                   | Current portion of long-term debt                                           |                                         | $      
|                                   | Trade accounts payable                                                      |                                         |        
|                                   | Accrued expenses                                                            |                                         |        
|                                   |                                                                             |                                         |        
|                                   |                                                                             | Total current liabilities               |        
|Long-term debt                     |                                                                             |                                         | 460,621
|Due to related party               |                                                                             |                                         | 7,986  
|Other noncurrent liabilities       |                                                                             |                                         | 3,189  
|                                   |                                                                             |                                         |        
|                                   |                                                                             | Total liabilities                       |        
|                                   |                                                                             |                                         |        
|Partners' capital:                 |                                                                             |                                         |        
|                                   | Common Unitholders (17,260,435 and 16,821,760 units issued and outstanding) |                                         |        
|                                   | Subordinated Unitholders (6,597,619 units issued and outstanding)           |                                         |        
|                                   | General Partners                                                            |                                         |        
|                                   | Accumulated other comprehensive loss                                        |                                         |        
|                                   |                                                                             |                                         |        
|                                   |                                                                             | Total partners' capital                 |        
|                                   |                                                                             |                                         |        
|                                   |                                                                             | Total liabilities and partners' capital |        
|                                   |                                                                             |                                         |        

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

33

---



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

|                                                                                         |                                                                          | Years Ended June 30, |          
|---------------------------------------------------------------------------------------- | ------------------------------------------------------------------------ | -------------------- | ---------
|
|
|Revenues                                                                                 |                                                                          | $                    | 4,206,400
|Cost of sales                                                                            |                                                                          |                      | 3,971,757
|                                                                                         |                                                                          |                      |          
|                                                                                         | Gross profit                                                             |                      |          
|                                                                                         |                                                                          |                      |          
|Expenses:                                                                                |                                                                          |                      |          
|                                                                                         | Operating, general and administrative                                    |                      |          
|                                                                                         | Depreciation                                                             |                      |          
|                                                                                         | Amortization                                                             |                      |          
|                                                                                         | Loss on disposition of business and other non-recurring charges          |                      |          
|                                                                                         |                                                                          |                      |          
|                                                                                         |                                                                          | Total expenses       |          
|                                                                                         |                                                                          |                      |          
|                                                                                         | Operating income                                                         |                      |          
|Increase in fair value of derivatives                                                    |                                                                          |                      | 5,986    
|Interest expense                                                                         |                                                                          |                      | (40,222  
|                                                                                         |                                                                          |                      |          
|                                                                                         | Income (loss) before provision for income taxes                          |                      |          
|Provision (benefit) for income taxes                                                     |                                                                          |                      | (4,360   
|                                                                                         |                                                                          |                      |          
|                                                                                         | Income (loss) before cumulative effect of change of accounting principle |                      |          
|Cumulative effect of change of accounting principle                                      |                                                                          |                      | (5,329   
|                                                                                         |                                                                          |                      |          
|                                                                                         | Net income (loss)                                                        |                      | $        
|                                                                                         |                                                                          |                      |          
|General Partners' interest in net income (loss)                                          |                                                                          | $                    | (289     
|                                                                                         |                                                                          |                      |          
|Limited Partners' interest in net income (loss)                                          |                                                                          | $                    | (14,164  
|                                                                                         |                                                                          |                      |          
|Income (loss) per Common Unit before cumulative effect of change of accounting principle |                                                                          | $                    | (0.38    
|Cumulative effect of change of accounting principle                                      |                                                                          |                      | (0.22    
|                                                                                         |                                                                          |                      |          
|Net income (loss) per Common Unit                                                        |                                                                          | $                    | (0.60    
|                                                                                         |                                                                          |                      |          
|Weighted average number of units outstanding                                             |                                                                          |                      | 23,634   
|                                                                                         |                                                                          |                      |          

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

34

---



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

|                         |                                                                                             |                            |       |       |   | Thousands of Dollars |        
|------------------------ | ------------------------------------------------------------------------------------------- | -------------------------- | ----- | ----- | - | -------------------- | -------
|
|
|
|
|Balance at June 30, 1998 |                                                                                             | 13,235                     |       | 6,598 |   | $                    | 185,803
|                         | Comprehensive net income:                                                                   |                            |       |       |   |                      |        
|                         |                                                                                             | Net income                 |       |      |   |                     |        
|                         |                                                                                             | Other comprehensive loss   |       |      |   |                     |        
|                         |                                                                                             |                            |       |       |   |                      |        
|                         |                                                                                             | Net comprehensive income   |       |      |   |                     |        
|                         | Issuance of Common Units and General Partners' contribution                                 |                            | 3,100 |       |  |                      |        
|                         | Issuance of Common Units and General Partners' contribution in connection with acquisitions |                            | 454   |       |  |                      |        
|                         | Quarterly distributions                                                                     |                            |      |       |  |                      |        
|                         |                                                                                             |                            |       |       |   |                      |        
|Balance at June 30, 1999 |                                                                                             | 16,789                     |       | 6,598 |   |                      | 220,237
|                         |                                                                                             |                            |       |       |   |                      |        
|                         | Comprehensive net loss:                                                                     |                            |       |       |   |                      |        
|                         |                                                                                             | Net loss                   |       |      |   |                     |        
|                         |                                                                                             | Other comprehensive loss   |       |      |   |                     |        
|                         |                                                                                             |                            |       |       |   |                      |        
|                         |                                                                                             | Net comprehensive loss     |       |      |   |                     |        
|                         | Issuance of Common Units and General Partners' contribution                                 |                            | 33    |       |  |                      |        
|                         | Quarterly distributions                                                                     |                            |      |       |  |                      |        
|                         |                                                                                             |                            |       |       |   |                      |        
|Balance at June 30, 2000 |                                                                                             | 16,822                     |       | 6,598 |   |                      | 176,961
|                         |                                                                                             |                            |       |       |   |                      |        
|                         | Comprehensive net loss:                                                                     |                            |       |       |   |                      |        
|                         |                                                                                             | Net loss                   |       |      |   |                     |        
|                         |                                                                                             | Other comprehensive income |       |      |   |                     |        
|                         |                                                                                             |                            |       |       |   |                      |        
|                         |                                                                                             | Net comprehensive loss     |       |      |   |                     |        
|                         | Issuance of Common Units and General Partners' contribution                                 |                            | 59    |       |  |                      |        
|                         | Issuance of warrants and conversion into common units                                       |                            | 379   |       |  |                      |        
|                         | Issuance of warrants in payment of fees                                                     |                            |      |       |  |                      |        
|                         | Quarterly distributions                                                                     |                            |      |       |  |                      |        
|                         |                                                                                             |                            |       |       |   |                      |        
|Balance at June 30, 2001 |                                                                                             | 17,260                     |       | 6,598 |   | $                    | 139,090
|                         |                                                                                             |                            |       |       |   |                      |        

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

35

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

|Years Ended June 30,                           |                                                                                   | 2001                                                              |                                             | 2000                               |        | 1999    |        
|---------------------------------------------- | --------------------------------------------------------------------------------- | ----------------------------------------------------------------- | ------------------------------------------- | ---------------------------------- | ------ | ------- | -------
|
|CASH FLOWS FROM OPERATING ACTIVITIES:          |                                                                                   |                                                                   |                                             |                                    |        |         |        
|                                               | Net income (loss)                                                                 |                                                                   | $                                           | (14,453                            | )      | $       | (10,363
|                                               | Adjustments to reconcile net (loss) income to net cash from operating activities: |                                                                   |                                             |                                    |        |         |        
|                                               |                                                                                   | Depreciation                                                      |                                             |                                    | 25,334 |         |        
|                                               |                                                                                   | Amortization                                                      |                                             |                                    | 24,302 |         |        
|                                               |                                                                                   | Increase in fair market value of derivatives                      |                                             |                                    | (657   | )       |        
|                                               |                                                                                   | Deferred income taxes                                             |                                             |                                    | (4,511 | )       |        
|                                               |                                                                                   | Other                                                             |                                             |                                    | (1,091 | )       |        
|                                               |                                                                                   | Changes in assets and liabilities, net of effect of acquisitions: |                                             |                                    |        |         |        
|                                               |                                                                                   |                                                                   | Trade receivables                           |                                    |        | (77,073 | )      
|                                               |                                                                                   |                                                                   | Inventories                                 |                                    |        | 39,323  |        
|                                               |                                                                                   |                                                                   | Prepaid expenses and other current assets   |                                    |        | (1,580  | )      
|                                               |                                                                                   |                                                                   | Trade accounts payable and accrued expenses |                                    |        | 78,829  |        
|                                               |                                                                                   |                                                                   |                                             |                                    |        |         |        
|                                               |                                                                                   |                                                                   |                                             | Net cash from operating activities |        |         | 68,423 
|                                               |                                                                                   |                                                                   |                                             |                                    |        |         |        
|CASH FLOWS FROM INVESTING ACTIVITIES:          |                                                                                   |                                                                   |                                             |                                    |        |         |        
|                                               | Expenditures for property, plant and equipment, net                               |                                                                   |                                             | (13,777                            | )      |         | (25,226
|                                               | Acquisitions, net of cash received                                                |                                                                   |                                             |                                   |        |         | (30,215
|                                               | Proceeds from sale of assets                                                      |                                                                   |                                             | 10,061                             |        |         | 6,640  
|                                               | Other assets                                                                      |                                                                   |                                             | (2,705                             | )      |         | (1,468 
|                                               |                                                                                   |                                                                   |                                             |                                    |        |         |        
|                                               |                                                                                   |                                                                   |                                             | Net cash from investing activities |        |         | (6,421 
|                                               |                                                                                   |                                                                   |                                             |                                    |        |         |        
|CASH FLOWS FROM FINANCING ACTIVITIES:          |                                                                                   |                                                                   |                                             |                                    |        |         |        
|                                               | Net change in Bank Credit Facility                                                |                                                                   |                                             | (12,600                            | )      |         | 28,800 
|                                               | Payments on other long-term debt                                                  |                                                                   |                                             | (9,135                             | )      |         | (5,508 
|                                               | Proceeds from Senior Note Offerings                                               |                                                                   |                                             |                                   |        |         | 60,000 
|                                               | Payments for debt financing                                                       |                                                                   |                                             | (1,339                             | )      |         | (1,692 
|                                               | Proceeds from additional unit offerings                                           |                                                                   |                                             |                                   |        |         |       
|                                               | Payments for additional unit offerings                                            |                                                                   |                                             |                                   |        |         |       
|                                               | Advances from (payments to) related parties                                       |                                                                   |                                             | (2,675                             | )      |         | 4,420  
|                                               | General Partners' contributions, net                                              |                                                                   |                                             | 10                                 |        |         |       
|                                               | Partnership distributions                                                         |                                                                   |                                             | (37,600                            | )      |         | (37,043
|                                               |                                                                                   |                                                                   |                                             |                                    |        |         |        
|                                               |                                                                                   |                                                                   |                                             | Net cash from financing activities |        |         | (63,339
|                                               |                                                                                   |                                                                   |                                             |                                    |        |         |        
|NET CHANGE IN CASH AND CASH EQUIVALENTS        |                                                                                   |                                                                   | (1,337                                      | )                                  |        | (1,492  | )      
|CASH AND CASH EQUIVALENTS, beginning of period |                                                                                   |                                                                   | 7,737                                       |                                    |        | 9,229   |        
|                                               |                                                                                   |                                                                   |                                             |                                    |        |         |        
|CASH AND CASH EQUIVALENTS, end of period       |                                                                                   | $                                                                 | 6,400                                       |                                    | $      | 7,737   |        
|                                               |                                                                                   |                                                                   |                                             |                                    |        |         |        

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

36

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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"). These consolidated
financial statements include the accounts of Cornerstone Partners, the Operating Partnership and its corporate subsidiaries, collectively referred to herein as the "Partnership." The Operating
Partnership is principally engaged in (a) the retail marketing and distribution of propane for residential, commercial, industrial, agricultural, and other retail uses; (b) through Coast
Energy Group ("CEG"), the marketing and distribution of propane, other natural gas liquids, crude oil, and natural gas 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
General Partners of the Partnership, Cornerstone Propane GP, Inc. (a wholly owned subsidiary of Northwestern Growth Corp.) and SYN, Inc. (a majority owned subsidiary
of Cornerstone Propane GP, Inc.) own the entire general partner interest in the Partnership and all of the Subordinated Units, representing an aggregate 27.1% limited partner interest and a 2%
General Partner interest in the Partnership. The Partnership is managed by the Managing General Partner, Cornerstone Propane GP, Inc. Through the Managing General Partner's ability 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 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.

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. As of June 30, 2001, 3,890,562 Parity Units are available for issuance. 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 Units for the repayment of up to
$75.0 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

37

---

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 years ended June 30, 2000 and 1999. The total consideration for these acquisitions consisted of both Common Units
and debt, as follows:

During the years ended June 30:2000

1999Number of acquisitions


13


15Total consideration(millions)

$
32.0

$
160.9Value of PartnershipUnits issued(millions)





9


All
acquisitions have been accounted for using the purchase method of accounting and, accordingly, the purchase price has been allocated to the assets acquired and liabilities assumed
based on preliminary estimates of fair value as of the date of acquisition. Adjustments are made to these preliminary estimates during the appropriate allocation period when additional information is
available to the Partnership. In addition, costs to be incurred as a direct result of the acquisition, which will have no future benefit, are accrued at the time of the acquisition. The balance of
these costs was $6.9 million at June 30, 1999; fiscal 2000 additions were $1.0 million, charges were $7.6 million, and the balance at June 30, 2000 was
$0.3 million. Fiscal 2001 additions were $0.5 million, charges were $0.8 million, and the balance at June 30, 2001 was $0.0 million. The estimated purchase price
allocations (including estimates of these costs) are subject to adjustments, generally within one year of the date of the acquisitions, should new or additional facts about the acquisitions become
available. The excess of the total purchase price over the estimated fair value of the net tangible and intangible assets acquired has been recorded as goodwill. Operating activities of the acquired
companies have been included in the accompanying consolidated financial statements since their purchase dates.

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of OperationsThe Partnership is one of the largest retail marketers of propane in the
United States in terms of volume, serving more than 470,000 residential, commercial, industrial, and agricultural customers from over 260 customer service centers in 34 states. The Partnership's
operations are concentrated in the east, south, central, and west coast regions of the United States.

Basis of PresentationThese consolidated financial statements include the accounts of Cornerstone Partners and its
subsidiaries. Certain 2000 and 1999 amounts in the accompanying financial statements have been reclassified to conform to the 2001 presentation. These reclassifications had no effect on operations or
partners' capital as previously reported. All significant intercompany transactions and accounts have been eliminated.

Use of EstimatesThe preparation of financial statements in conformity with accounting principles generally accepted in the
United States 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.

38

---

Financial InstrumentsThe carrying amounts for cash and cash equivalents, trade receivables, and accounts payable
approximate fair value because of the short-term nature of these financial instruments. Based on the borrowing rates estimated to be available to the Partnership for bank loans with
similar terms and average maturities, the fair value of long-term debt was approximately $22.1 million above its carrying value at June 30, 2001 and $19.8 million
below its carrying value at June 30, 2000. See Note 10 for additional information on derivatives.

Revenue RecognitionSales of propane, other natural gas liquids, natural gas, and crude oil and the related cost of product
are recognized at the time product is shipped or delivered to the customer. Revenue from the sale of propane appliances and equipment is recognized at the time of sale or installation, while revenue
from repairs and maintenance is recognized upon completion of the service. Revenue from the rental of propane storage tanks is recognized on a straight-line basis over the term of the
lease, generally one year.

Cash and Cash EquivalentsThe Partnership considers all liquid investments with original maturities of three months or less
to be cash equivalents. Cash equivalents consist of money market accounts and certificates of deposit.

Trade Receivables, netTrade receivables are stated net of allowance for doubtful accounts as follows for the years ended
June 30, 2001 and 2000:

2001

2000Beginning balance

$
2,651

$
2,383Provision


1,388


2,145Write-offs, net of recoveries


(1,052
)

(1,877
)Ending balance

$
2,987

$
2,651


InventoriesInventories are stated at the lower of cost or market, with cost being determined using the
first-in, first-out ("FIFO") method for natural gas liquids ("NGL"), crude oil, natural gas, and parts, and the specific identification method for appliances. At
June 30, the major components of inventory consisted of the following:

2001

2000NGL and other

$
19,358

$
28,006Natural gas


2


3,994Crude oil


3,920


28,404Appliances


2,996


4,597Parts


4,045


4,643Total

$
30,321

$
69,644


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, with subsequent additions being added at their actual cost or based upon estimates of their fair value at the dates the applicable companies or assets
were acquired. Depreciation is computed using the straight-line method over the estimated useful lives of the assets as follows: buildings and improvements, 10 to 40 years; storage
and

39

---

consumer tanks, together with applicable installation costs, 10 to 40 years; and vehicles, equipment, office furnishings, and software costs, 3 to 10 years. The Partnership capitalizes
both internal and external costs to develop and implement software. Leasehold improvements are amortized over the shorter of the estimated useful lives or the applicable lease terms. 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 betterments that extend estimated useful lives
are capitalized. Property, plant, and equipment at June 30 consisted of the following:

2001

2000Land

$
14,425

$
14,448Buildings and improvements


15,355


15,648Storage and consumer tanks


294,704


293,229Other equipment


78,284


74,868402,768


398,193Less accumulated depreciation


73,920


51,503Total

$
328,848

$
346,690


GoodwillGoodwill represents the excess of acquisition cost over the estimated fair market value of identifiable net assets
of acquired businesses and is being amortized on a straight-line basis over 40 years. Goodwill at June 30 consisted of the following:

2001

2000Goodwill

$
343,695

$
345,065Less accumulated amortization


28,587


20,425Total

$
315,108

$
324,640


Other Intangible AssetsNoncompete and other agreements are amortized over the terms of the applicable agreements.
Financing costs incurred in connection with the placement of Partnership debt are amortized over the terms of the applicable notes using the straight-line method. Other intangible assets
at June 30 consisted of the following:

2001

2000Noncompete agreements

$
26,560

$
25,912Financing costs


25,242


10,744Other


9,769


9,86961,571


46,525Less accumulated amortization


28,947


13,369Total

$
32,624

$
33,156


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

40

---

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.

Foreign CurrencyThe Partnership uses the U.S. Dollar as its functional currency. Financial statements of the Partnership's
Canadian operations are translated to U.S. Dollars for consolidation purposes using current rates of exchange for assets and liabilities. Revenues and expenses are translated at rates that
approximate the rates in effect on the transaction date. Gains and losses from this process are included in Operating, General and Administrative expenses in the Consolidated Statement of Operations.

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 these consolidated financial statements related to the earnings
of Cornerstone Partners or the Operating Partnership. The Operating Partnership has subsidiaries that operate in corporate form and are subject to federal and state income taxes. Accordingly, these
consolidated financial statements reflect income taxes related to the operations of these corporate subsidiaries. In fiscal 2001, the Partnership recognized an income tax benefit related to the
implementation of certain tax planning strategies to utilize net operating loss carryforwards in the corporate subsidiaries. This benefit was the result of a reduction in a previously established
valuation allowance on the deferred tax asset. At June 30, 2001 and 2001, the net non-current deferred tax liability was $1.7 million and $6.2 million, respectively.
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.

Income
taxes for the Partnership's corporate subsidiaries are provided based on the provisions of Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes" which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements and tax returns
in different years. Under this method, deferred income tax assets and liabilities are determined based on the difference between the financial statement and tax basis of the assets and liabilities
using the enacted tax rates in effect for the year in which the differences are expected to reverse.

Limited Partners' Net Income (Loss) per UnitNet income (loss) per unit is computed by dividing net income (loss), after
deducting the General Partners' 2% interest, by the weighted average number of outstanding Common and Subordinated Units.

Unit-Based and Phantom Stock Based CompensationThe Partnership accounts for unit-based
compensation as (a) deferred compensation for time-vesting units and (b) compensation for performance-vesting units when the Partnership's performance meets defined criteria
(see Note 6). Compensation for the time-vesting units was accrued when the units were granted. No compensation has been accrued for performance-vesting units since the Partnership
has not made any distributions to the Subordinated Unitholders during the past three fiscal years. As of June 30, 2001, 53,927 units of the time-vesting units
had vested, valued at $656,000. Unvested units are not considered Common Unit equivalents for the purpose of computing primary earnings per unit.

41

---

The Partnership has a Stock Appreciation Rights ("SAR") plan that utilizes phantom stock to compensate selected management at CEG. Compensation expense is recognized annually for the
changes in vesting and value of the phantom stock. The Partnership follows the disclosure only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation". Pro forma net income and
net income per unit under the fair value based method of accounting for equity instruments under SFAS No. 123 would not be materially different than reported net income and net income per unit.

Loss on disposition of business and other non-recurring chargesDuring fiscal 2000, the Partnership expanded
CEG's physical natural gas operations into financial instruments. Management subsequently concluded that this strategy was incompatible with the Partnership's risk profile and value proposition and,
accordingly, discontinued those operations in the fourth quarter of fiscal 2000. The Partnership recognized $5.6 million of related losses in fiscal 2001 and $4.6 million in fiscal 2000.

In
February 2001, the Partnership consummated the sale of its Canadian crude oil activities. The terms of this agreement transfer certain assets and contracts of CEG's Canadian
business operations to the buyer effective December 1, 2000. This transaction was reported in the Partnership's third fiscal quarter results. In the fourth quarter of fiscal 2001, the
Partnership recorded a $9.8 million non-cash charge following a detailed review of the Canadian crude oil and U.S.-based petroleum liquids processing operations of CEG. The review
was performed in connection with the documentation of the final accounting treatment of the sale of CEG's Canadian crude oil business in fiscal 2001. It was determined that $8.2 million of this
charge was directly related to the Canadian crude oil business, which is included in "Loss on disposition of business and other non-recurring charges" on the Partnership's Consolidated
Statement of Operations. The net loss from the disposition of the Canadian crude oil business was $7.8 million.

Comprehensive IncomeComprehensive income is comprised of net income and foreign currency translation adjustments.

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

2001

2000Bank Credit Facility

$
34,300

$
46,900Senior Notes


410,000


410,000Notes payable


23,856


31,389468,156


488,289Less current maturities


7,535


9,671Total

$
460,621

$
478,618


On
November 20, 1998, the Partnership entered into a new Bank Refunding Credit Agreement (the "Credit Agreement"). The Credit Agreement was subsequently amended effective
June 30, 2000 to provide greater flexibility with respect to the financial covenants under the original Credit Agreement. In connection with this amendment, Northwestern Corporation
("Northwestern" the owner of the General Partner interest and Subordinated Units) provided certain guaranties under the Credit Agreement. The Partnership incurred amendment fees and expenses and
entered into an agreement

42

---

with Northwestern authorizing the issuance of warrants to purchase 568,750 Partnership common units under certain circumstances. Warrants for 379,438 common units were exercised during fiscal 2001.

The
Working Capital Facility under the Credit Agreement provides for revolving borrowings up to $70.0 million (including a $20.0 million sub-limit for
letters of credit) and matures on November 30, 2001. The Credit Agreement provides that there must be less than $20.0 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 $16.8 million at June 30, 2001.

The
Acquisition Facility under the Credit Agreement provides the ability to borrow to finance business acquisitions and growth capital expenditures. The Acquisition Facility operates
as a revolving facility through November 30, 2001. As of June 30, 2001, $10.7 million was outstanding under the Acquisition Facility, which cannot be increased.

The
Partnership is currently negotiating to extend the maturity date of the Credit Agreement with a maturity date in fiscal 2003 or later. While management believes that negotiations
are proceeding satisfactorily, contractual commitments have not been made as of October 5, 2001, and the transaction has not been consummated. Northwestern, in its capacity as owner of the
Managing General Partner, has agreed to extend credit to the Partnership in the event satisfactory third part financing cannot be arranged by November 30, 2001. While the terms of such credit
facility would need to be negotiated, Northwestern has agreed that any such credit extension would not mature prior to July 1, 2002, unless an alternative third party credit facility was in
place. As a result of this commitment, the Credit Agreement continues to be classified as long term.

In
addition to the Operating Partnership's obligations under the Credit Agreement, the Operating Partnership has obtained funds and has obligations through Senior Note Agreements,
which are secured, on an equal and ratable basis, with its obligations under the Credit Agreement. Subordinated to these obligations, Cornerstone Partners has obtained funds and has obligations on its
Senior Note Agreements.

Loans
under the Credit Agreement are variable interest rate loans, based on prime or Eurodollar interest rates. At June 30, 2001, the applicable base prime and Eurodollar rates
were 7.75% and 5.42%,respectively. In addition, a fee is payable quarterly by the Operating Partnership (whether or not borrowings occur) ranging from
 .25% to .50% depending upon specific financial ratios. The weighted-average interest rates for the Credit Agreement and Senior Note borrowings for the years ended June 30, 2001, 2000, and 1999
were 8.1%, 8.0% and 7.7%, respectively.

On
December 17, 1996, the Operating Partnership issued $220.0 million of Senior Secured Notes with a fixed annual interest rate of 7.53% pursuant to note purchase
agreements with various investors. These notes rank on an equal and ratable basis with the Operating Partnership's obligations under the Credit Agreement, mature on December 30, 2010, and
require semi-annual interest payments each December 30 and June 30. This note agreement requires that the principal be paid in equal annual installments of
$27.5 million starting December 30, 2003.

On
December 11, 1998, the Operating Partnership issued $85.0 million of Senior Secured Notes with a fixed annual interest rate of 7.33% pursuant to note purchase
agreements with various investors. These notes rank on an equal and ratable basis with the Operating Partnership's obligations under the Credit Agreement and other Senior Secured Notes, mature on
January 31, 2013, and require

43

---

semi-annual interest payments each January 31 and July 31. This note agreement requires that the principal be paid in equal annual installments of $9.4 million
starting January 31, 2005.

On
June 25, 1999, Cornerstone Partners issued $45.0 million of Senior Notes with a fixed annual interest rate of 10.26% pursuant to note purchase agreements with various
investors. These notes are subordinated to all other senior notes and the credit agreement, mature on June 30, 2009, and require semi-annual interest payments each
December 31 and June 30. This note agreement requires that the principal be paid in equal annual installments of $9.0 million starting June 30, 2005.

On
November 4, 1999, the Operating Partnership issued $60.0 million of Senior Secured Notes pursuant to note purchase agreements with various investors in two tranches
as follows: (a) $30.0 million with a fixed annual interest rate of 8.08%, maturity date of July 31, 2005, and semi-annual interest payments
each January 31 and July 31. These notes are to be paid in equal annual installments of $10.0 million starting July 31, 2003; and (b) $30.0 million with a
fixed annual interest rate of 8.27%, maturity date of July 31, 2009, and semi-annual interest payments each January 31 and July 31. These notes are to be paid in equal
annual installments of $4.3 million starting July 31, 2003. These notes rank on an equal and ratable basis with the Operating Partnership's obligations under the Credit Agreement and
other Senior Secured Notes.

The
terms and covenants of these Senior Note agreements include various financial ratios. These ratios are incurrence tests to be met in order to borrow additional debt by the
Partnerships other than under the Credit Agreement and certain other exceptions. In addition, other financial ratios must be met for the Partnership to pay the Minimum Quarterly Distribution ("MQD")
without approval of the Senior Note holders. At June 30, 2001, the Partnership's financial ratios were outside of the incurrence test thresholds; therefore the Partnership is currently
precluded from borrowing additional debt other than under the Credit Agreement and certain other exceptions until these financial ratios are within the thresholds stated in the agreements. The
Partnership's financial ratios meet all requirements with respect to its ability to make distribution payments. The Partnership was in compliance with all other terms and covenants of these Senior
Notes at June 30, 2001.

44

---

The terms and covenants of the Credit Agreement also include various financial ratios. The Partnership was in compliance with all terms and covenants of the Credit Agreement at
June 30, 2001.

Notes
payable consist of mortgages, capital leases, and noncompete agreements. At June 30, 2001, these notes payable carried interest rates ranging from 7.25% to 10.5% and are
due periodically through fiscal 2008.

Aggregate
annual maturities of the long-term debt outstanding are:

|Fiscal year ending June 30, |            |     
|--------------------------- | ---------- | ----
|                            |            | 2002
|                            |            | 2003
|                            |            | 2004
|                            |            | 2005
|                            |            | 2006
|                            | Thereafter |     
|                            |            |     
|Total                       |            | $   
|                            |            |     

4. DISTRIBUTIONS OF AVAILABLE CASH

The Partnership will make distributions to its partners for each fiscal quarter of the Partnership within 45 days after the end of the fiscal quarter in
an aggregate amount equal to its Available Cash for such quarter. Available Cash generally means all cash on hand at the end of each 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 of $.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 end the first day of any quarter in which:



Distributions
are determined on a quarterly basis. During Fiscal 2001, Common Unitholders were paid $0.54 per unit for the quarters ending in September, December, and March. For the
quarter ending in June 2001, the Common Unitholders were paid $0.27 per unit. As discussed above, the Common Unitholders are entitled to arrearages of the Minimum Quarterly Distribution prior
to the distribution of Available Cash to Subordinated Unitholders. During fiscal 2000 and 1999, Common

45

---

Unitholders were paid $0.54 per unit for each quarter. There have been no distributions to Subordinated Unitholders in fiscal 2001, 2000, or 1999.

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 Partnership's 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 AND PHANTOM STOCK PLANS

The Partnership adopted the 1996 Restricted Unit Plan ("RUP"), as amended, to authorize the issuance of Common Units with an aggregate value of
$17.5 million (approximately 870,000 Common Units) to directors, executives, managers, and selected supervisors of the Partnership. Units issued under the RUP are subject to a bifurcated
vesting schedule such that (a) 25% of the issued units 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 vest automatically upon the conversion of Subordinated Units to Common Units. RUP participants are not eligible to receive quarterly
distributions or vote their respective units until the applicable units vest. 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 Common Units at the date of grant. Vested units issued under the RUP may not be sold for at least one year and are subject to the provisions of SEC
Rule 144. As of June 30, 2001, restricted units with a value of $10.9 million have been awarded but not vested. The compensation cost related to such units will be recognized over
the vesting period of the related awards.

The
Partnership adopted the 1996 Stock Appreciation Rights ("SAR") plan, as amended utilizing a valuation of phantom stock and vests over a five year period for each participant. As
of June 30, 2001, the total value accrued related to the SAR plan was $0.1 million.

7. PARTNERS' CAPITAL

Partners' Capital consists of General Partner ownership (2.0%), Common Unitholder interest (70.9%) and Subordinated Unitholder interest (27.1%) as of
June 30, 2001. When additional units are issued, the General Partners are required to make additional contributions to maintain their 2% interest in the Partnership.

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Upon expiration of the Subordination Period (see Note 4), 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 PLANS

The Partnership maintains a defined contribution retirement plan under section 401(k) of the Internal Revenue Code (the "Plan") available to
substantially all employees. Employees who elect to participate may contribute a percentage of their salaries to the Plan. The Partnership contributed from 20% to 40% of the employee's contributions
to the Plan up to a maximum of 5% of the employee's salary. Contributions to the Plan were not material for the years ended June 30, 2001, 2000 or 1999.

In
addition, the Partnership maintains a non- qualified Supplemental Executive Retirement Plan ("SERP") for selected management. The SERP plan provides benefits for
participants and allows for deferral of a portion of the participant's salary if elected. The Partnership does not contribute any funds to a third party administrator for the SERP. Participants are
100% vested. Distributions are made only when the participant terminates employment from the Partnership.

9. OPERATING LEASES

The Partnership leases retail sales offices and administrative office space under cancelable and noncancelable operating leases expiring in various years
through 2008. These leases generally contain renewal options and require the Partnership to pay all executory costs (property taxes, maintenance, and insurance). Rental expense under all operating
leases was $6.4 million, $6.1 million, and $5.6 million in the years ended June 30, 2001, 2000, and 1999, respectively.

Future
minimum lease payments under noncancelable operating leases are:

|Fiscal year ending June 30, |      | 
|--------------------------- | ---- | 
|                            | 2002 | 
|                            | 2003 | 
|                            | 2004 | 
|                            | 2005 | 
|                            | 2006 | 
|Thereafter                  |      | 

10. DERIVATIVES AND HEDGING

The Partnership utilizes commodity futures contracts and other financial derivatives to reduce its exposure to unfavorable changes in commodity prices. For the
years ended June 30, 2000 and 1999, the Partnership followed the provisions of SFAS No. 80, "Accounting for Futures Contracts", in accounting for derivatives. Net realized gains and
losses for derivatives designated and qualifying as hedges were deferred and recognized in cost of sales as a component of the product cost of the hedged item. Net realized gains and losses for
derivatives not qualifying as hedges were recognized in earnings when the position was closed. During fiscal 2000, natural gas derivatives were also used to expand CEG's natural gas operations, which,
due to unfavorable market movements, resulted in a charge against earnings of $4.6 million in fiscal 2000. The Partnership determined that these activities were incompatible with the
Partnership's risk profile and tolerance, and these activities were discontinued in the fourth quarter of fiscal 2000. As these positions were closed out, a charge against earnings of
$5.6 million was recorded during fiscal 2001.

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In July 2000, the Partnership adopted the provisions of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", which established new accounting
and reporting guidelines requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS No. 133 requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met.
Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement. Companies must formally document, designate, and
assess the effectiveness of transactions that receive
hedge accounting. The Partnership has elected to neither formally document the effectiveness of derivatives nor determine if transactions meet the stringent requirements for hedge accounting under
SFAS No. 133; therefore, all derivatives are marked to market. As such, any increases or decreases in contract values, compared to month-end market prices, are reported as gains or
losses in the Partnership's Consolidated Statement of Operations.

At
July 1, 2000, the Partnership had net unrealized losses on derivatives totaling $5.3 million, which was recognized as the cumulative effect of adopting SFAS
No. 133 in fiscal 2001. During the year ended June 30, 2001, the Partnership's liability for derivatives decreased by $6.0 million, which is reported as the increase in fair value
of derivatives in the Consolidated Statement of Operations. At June 30, 2001, the fair market value of the Partnership's derivatives exceeded their contract values by approximately
$0.7 million, which is included in other assets in the Consolidated Financial Statements.

The
fair value of fixed-price contracts as of June 30, 2001 was estimated based on market prices of natural gas, natural gas liquids, and crude oil for the periods covered by
the contracts. The net differential between the prices in each contract and market prices for future periods, as adjusted for estimated basis, has been applied to the volumes stipulated in each
contract to arrive at an estimated future value. This estimated future value was discounted on a contract-by-contract basis at rates commensurate with our estimation of
contract performance risk and counterparty credit risk.

11. RECENTLY ADOPTED ACCOUNTING STANDARDS

On July 20, 2001, the Financial Accounting Standards Board issued SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142").
SFAS No. 142 eliminates the requirement to amortize goodwill over its estimated useful life; rather, goodwill will be subject to at least an annual fair-value based impairment test.
SFAS No. 142 also requires that intangible assets be recognized separately if the benefit of the intangible asset is obtained through contractual rights or if the intangible asset can be sold,
transferred, licensed, rented or exchanged without regard to the acquirer's intent to do so. The Partnership is evaluating the impact of adopting SFAS No. 142 and intends to adopt SFAS
No. 142 effective July 1, 2001. Goodwill amortization for the years ended June 30, 2001, 2000, and 1999 was $8.2 million, $8.3 million, and $7.2 million,
respectively.

12. SEGMENT AND RELATED INFORMATION

The Partnership's two principal business segments are its retail and CEG operations. The retail segment includes propane sales, principally to
end-users; repair and maintenance of propane heating systems and appliances; and the sale of propane-related supplies, appliances, and other equipment. These transactions are accounted for
as one business segment internally and share the same customer base. CEG provides marketing and distribution services to other resellers of propane and end-users. Principal products are
propane, other natural gas liquids, crude oil, and natural gas. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. Intra-company
transactions between segments are recorded at the approximate market value at

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the transaction date. The segments are evaluated internally using earnings before interest, taxes, depreciation, amortization, and non-recurring charges ("EBITDA"). Normal gains and losses
from the sale of assets are included in Operating, general and administrative expenses, while gains and losses from the sale of business units are excluded. EBITDA should not be considered as an
alternative to net income (as an indicator of operating performance) or as an alternative to cash flow (as a measure of liquidity or ability to service debt obligations) and is not in accordance with
nor superior to generally accepted accounting principles, but provides additional information for evaluating the Partnership's ability to pay its Minimum Quarterly Distributions ("MQD"). Depreciation,
amortization, interest, and some operating, general and administrative expenses are not specifically tracked by business segment, and are therefore included in the "Other" category in the following
schedules:

|                                                                |                   | Year Ended June 30, 2001 |        
|--------------------------------------------------------------- | ----------------- | ------------------------ | -------
|
|Revenues                                                        |                   | $                        | 430,498
|Cost of sales                                                   |                   |                          | 237,398
|                                                                |                   |                          |        
|                                                                | Gross profit      |                          |        
|Operating, general and administrative expenses                  |                   |                          | 106,313
|                                                                |                   |                          |        
|                                                                | EBITDA            |                          |        
|Loss on disposition of business and other non-recurring charges |                   |                          |       
|Non-allocated expenses                                          |                   |                          |       
|                                                                |                   |                          |        
|                                                                | Net income (loss) |                          | $      
|                                                                |                   |                          |        

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|                                               |                   | Year Ended June 30, 2000 |        
|---------------------------------------------- | ----------------- | ------------------------ | -------
|
|Revenues                                       |                   | $                        | 338,392
|Cost of sales                                  |                   |                          | 170,256
|                                               |                   |                          |        
|                                               | Gross profit      |                          |        
|Operating, general and administrative expenses |                   |                          | 103,131
|                                               |                   |                          |        
|                                               | EBITDA            |                          |        
|Non-recurring charge                           |                   |                          |       
|Non-allocated expenses                         |                   |                          |       
|                                               |                   |                          |        
|                                               | Net income (loss) |                          | $      
|                                               |                   |                          |        

|                                               |                   | Year Ended June 30, 1999
|---------------------------------------------- | ----------------- | ------------------------
|
|Revenues                                       |                   | $                       
|Cost of sales                                  |                   |                         
|                                               |                   |                         
|                                               | Gross profit      |                         
|Operating, general and administrative expenses |                   |                         
|                                               |                   |                         
|                                               | EBITDA            |                         
|Non-allocated expenses                         |                   |                         
|                                               |                   |                         
|                                               | Net income (loss) |                         
|                                               |                   |                         

|                         |              | As of June 30, 2001 |        
|------------------------ | ------------ | ------------------- | -------
|
|Identifiable assets      |              | $                   | 298,732
|General corporate assets |              |                     |       
|                         |              |                     |        
|                         | Total assets |                     | $      
|                         |              |                     |        

|                         |              | As of June 30, 2000 |        
|------------------------ | ------------ | ------------------- | -------
|
|Identifiable assets      |              | $                   | 356,756
|General corporate assets |              |                     |       
|                         |              |                     |        
|                         | Total assets |                     | $      
|                         |              |                     |        

---

50

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13. ADDITIONAL CASH FLOW INFORMATION

|Year Ended June 30,       |                                                              | 2001 |   | 2000   |  | 1999
|------------------------- | ------------------------------------------------------------ | ---- | - | ------ |  | ----
|Noncash Transactions:     |                                                              |      |   |        |  |     
|                          | Assets acquired in exchange for partnership units            |      | $ |       |  | $   
|                          | Assets acquired in exchange for current liabilities and debt |      |   |       |  |     
|                          | Common Units issued in payment of debt                       |      |   | 580    |  |     
|                          | Warrants for Common Units issued in payment of fees          |      |   | 8,287  |  |     
|                          | Guarantee fees accrued                                       |      |   | 4,550  |  |     
|Cash Payment Information: |                                                              |      |   |        |  |     
|                          | Cash paid for interest                                       |      |   | 40,198 |  |     

14. QUARTERLY DATA (UNAUDITED)

|Fiscal 2001                |  | September 30 |           | December 31 |   | March 31  |     | June 30 |        
|-------------------------- |  | ------------ | --------- | ----------- | - | --------- | --- | ------- | -------
|
|Revenues                   |  | $            | 1,094,897 |             | $ | 1,815,728 |     | $       | 865,401
|Operating income (loss)    |  |              | (8,820    | )(a)        |   | 19,221    | (b) |         | 30,344 
|Net income (loss)          |  |              | (21,685   | )(a)        |   | 11,605    | (b) |         | 19,509 
|Net income (loss) per unit |  |              | (0.91     | )(a)        |   | 0.49      | (b) |         | 0.81   



|Fiscal 2000                |  | September 30 |         | December 31 |   | March 31 |  | June 30 |          
|-------------------------- |  | ------------ | ------- | ----------- | - | -------- |  | ------- | ---------
|Revenues                   |  | $            | 556,527 |             | $ | 929,309  |  | $       | 1,109,585
|Operating income (loss)    |  |              | (6,459  | )           |   | 18,416   |  |         | 30,015   
|Net income (loss)          |  |              | (14,867 | )           |   | 8,659    |  |         | 20,532   
|Net income (loss) per unit |  |              | (0.62   | )           |   | 0.36     |  |         | 0.86     



The
quarters ended September 30, 2000, December 31, 2000, and March 31, 2001 have been restated to reflect the effects of the application of Staff Accounting
Bulletin No. 101, Revenue Recognition ("SAB 101") issued by the Securities and Exchange Commission regarding the recognition of rental income on propane storage tanks by the Partnership. The
Partnership adopted SAB 101 in the fourth quarter of fiscal 2001 retroactive to July 1, 2000. The effect of this implementation was to adjust Revenues, Operating income (loss), and Net income
(loss) by $(1,431), $206, and $857 for the quarters ended September 30, December 31, and March 31, respectively. There was no significant cumulative effect upon initial adoption.

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